Qatar economy feels heat of global economic slow down

The D&B Business Optimism Index (BOI) for Q2 2009 was conducted in March 2009 against the backdrop of crude oil prices hovering around $45 and a deepening global recession.

According to a recent IMF report, the Qatari economy is expected to grow by 29% in 2009 in spite of the slowdown in world economy. The State is expected to maintain a budget current account surplus, despite increased spending to stem the impact of the global financial crisis.

However, the BOI report for the second quarter reveals that sentiments in the Qatari economy have taken a hit due to the outlook of the global economy.

Commenting on the overall findings of the BOI, Rajesh Mirchandani CEO of Dun & Bradstreet South Asia Middle East Ltd., says, "The outlook for second quarter is low key as compared to the previous quarter due to ongoing global economic uncertainty. According to the BOI survey, demand levels in the Qatari economy are expected to decline which will impact the profitability of business units across all sectors. Most business units are likely to tread cautiously in maintaining inventory levels and hiring new employees in light of the declining demand outlook. However, inflation is expected to decline further in the second quarter."

Robin McCall, Al khaliji's Acting Chief Executive Officer, commented on the BOI, results, "Government increased spending and latest measures to help the banking and financial sectors will positively affect the economy and boost the liquidity in the financial system. In Al khaliji, we see two positive outcomes in the Q2 2009 Business Optimism Index: first, inflation will continue to decrease; second most businesses expect the global economy to recover in 2010."

Stuart Pearce, CEO and Director General of the QFC Authority, said:

"While there is underlying strength in the Qatari economy as demonstrated by the ongoing investment activity at the upper end of the economy, this report underlines that the Qatari government is correct in taking measures to support the local banking sector so as to ensure that unlike other economies its capacity to lend to the commercial sector is not undermined by falling asset values. On the brighter side the number of firms expressing interest in operating in and from Qatar through the QFC has not dropped over the past year and if anything has increased."

The BOI study suggests that the downward pressure on prices remains intact as the selling price index drops to -18 as against 8 in the last quarter.

The biggest respite is expected to come from the building, construction & real estate sector with 39% of the respondents anticipating a fall in selling prices and 46% expecting no change. 54% of the respondents expect the cost of capital to stabilize in the second quarter with government taking measures to lower the interest rates to help the economy minimise the impact of the global financial crisis.

The availability of finance remains a key issue to the business community with 40% of the respondents surveyed citing a concern over it.

The sentiments in the hydrocarbon sector seem to be showing some signs of revival as the Business Optimism Index for the selling price has recovered from the low of -54 recorded in the last quarter to -7 in the second quarter.

However, 57% of the respondents in the hydrocarbon sector have cited the fall in oil prices and another 43% have referred to possible project delays as the key concerns facing the industry in the second quarter.

As for the business expectations about the global recession, 44% of the respondents in the non-hydrocarbon sector expect the global economic recovery to commence next year. 29% of the businesses are more optimistic and expect the global economic recovery to begin sometime this year. 27% of the companies are uncertain about the revival of global economic growth.

Business optimism indices are commonly used to better identify and understand the growth expectations of the business community and its response to current developments within an economy.

Issued quarterly, the Business Optimism Index for Qatar is based on an extensive survey conducted amongst the Qatari business community and is one of the most effective ways to keep track of where businesses think the Qatari economy is moving. The next Business Optimism Index on Qatar will be released in July 2009.