Kingdom’s SMEs hold stronger outlook for Q3
The economic outlook for Saudi Arabia remains favorable, with GDP growth expectations to stay above 4 percent in 2014 and 2015, according to the IMF (International Monetary Fund). After a modest contraction of 0.6 percent in 2013, growth in the hydrocarbon sector is forecasted to rise modestly in the current year. Saudi Arabia continues to play a systemic role in stabilizing the global oil market and hence its oil production levels are expected to stay high at least during the short run as long as problems in other oil producing nations continue to persist.
Crude oil sector output, which accounts for almost half of the $748 billion Saudi economy, quickened to an annual pace of 5.8 percent in the first quarter of 2014, from 4.1 percent in the previous three months, according to recent data from Central Department of Statistics & Information. This is the fastest output growth rate recorded since mid 2012. The oil sector GDP at current prices in Q1, 2014 amounted to $87.25 billion, a 2.1 percent gain y-o-y. Saudi Arabia may raise oil output in the second half of the year to meet expected higher seasonal demand, despite Libya's deal with rebels to resume oil exports.
Data from OPEC shows that the Kingdom’s crude oil production declined from 9.72 million bpd in Q1, 2014 to 9.66 million bpd in April but went back up to 9.71 million bpd in May.
Commenting on the findings of the survey, NCB Economist Sharihan Al-Manzalawi, said, “Consistent with the moderating economic outlook for the Saudi economy and accentuated by the seasonal downturn, the Business Optimism Index (BOI) for the Q3, 2014 displayed a pullback across both the hydrocarbon and non-hydrocarbon sectors. This trend was most noticed in the selling price parameter of the non-hydrocarbon sector with 83 percent of participants predicting satiability in selling prices.”
She said: “It is also worth noting that SME’s overall BOI reflected a higher optimism than large companies, yet has shown lower optimism in the hiring parameter compared to large companies. As expected, given the pace of awarded projects since the beginning of the year, construction sector BOI remained the highest steadied at 49 points in Q3. On a positive side, business expansion modestly inched up for the hydrocarbon sector, while only marginally pulled pack for the non-hydrocarbon sector. Moreover, though lower than last quarter, still 50 percent of the respondents in the non-hydrocarbon sectors have reported an improvement in the business environment”.
The business optimism survey indicates a significant pull back in outlook for Saudi Arabia’s hydrocarbon sector. The composite index has weakened from 49 in Q2, 2014 to 25 in Q3, 2014, reaching the lowest level since Q4 2012. All parameters have registered a significant decline in their BOI scores, when compared q-o-q as well as on a y-o-y basis.
The survey shows a 14 point drop in the composite index for the non-hydrocarbon sector; the index stands at 36 in Q3 compared to 50 in Q2.
The construction sector’s business outlook has steadied in Q3 at 49, the level observed in the previous quarter. While demand and hiring parameters have tracked sideways, the selling prices indicator has turned lower and the profitability index has advanced on account of expected growth in sales volumes. Consistent with moderate sentiments for the overall economy, the transport sector too has displayed a decline in its outlook for Q3; the composite BOI stands at 44, registering a 5 points drop q-o-q and a 13 points drop y-o-y.
The outlook for the manufacturing sector has dropped to a five-year low; the composite BOI stands at 36, the lowest since Q3 2009 and compared to 49 in the previous quarter as well as in Q3 2013.
The composite BOI for the finance, real estate & business services sector is at a series (5 years) low of 30, losing 18 points q-o-q and 16 points y-o-y. The index has been weighed down by lower optimism on all five parameters. 54% of the sector respondents do not foresee any hindrances to their business operations in Q3, 2014 as compared to a corresponding 61 percent in Q2.
Firms in the trade and hospitality sector in Saudi Arabia have also displayed the weakest sentiments in five years; the composite BOI stands at 28, which is 25 points lower than the index in Q2 and 18 points lower compared to the Q3 2013 score.
The Q3 survey shows that SMEs hold a slightly stronger outlook for Q3 compared to the large companies, with the respective composite scores at 38 and 34. SMEs are more confident with respect to demand, prices and profits, while large companies hold a stronger outlook on hiring.