Dun & Bradstreet South Asia Middle East Ltd (D&B) in association with Qatar Financial Centre (QFC) Authority released the D&B Business Optimism Index for Qatar for Q2 2010.
The survey for the Business Optimism Index for Q2 2010 was conducted in March, at a time when global economic recovery was being overshadowed by sovereign debt concerns in Europe, which led to a round of correction in international equity and commodity markets. The rebound in oil prices from the troughs witnessed in 2009 has helped the fiscal situation in oil exporting countries in the Middle East, allowing for budget and current account surpluses. In particular, Qatar’s LNG and related exports are expected to increase from US$ 24 bn last year to US$ 36 bn in 2010, while current account surplus will increase from US$ 13 bn to US$ 25 bn over the same period. Qatar’s economy surged at a healthy pace last year and is forecast to continue growing at a rapid pace in 2010 as well, helped by massive investments in the hydrocarbons sector and in infrastructure projects.
Moreover, the sharp rise in LNG production in 2009 offset the OPEC mandated decline in oil production, helping the country to post a GDP growth rate of 11%. As crude oil prices are expected to average in the range of US$ 70-80 per barrel during the current year, Qatar will be flush with enough petrodollars to finance its various diversification and development plans, particularly in the infrastructure sector.
The uneven pace of global economic recovery has weighed on business outlook for Q2 2010, which reveals mixed sentiments. Commenting on the findings of the survey Phil Strange, CFO of Dun and Bradstreet South Asia Middle East Ltd, comments, “Qatar is achieving steady GDP growth which is reflected in the D&B BOI survey where businesses are now more confident about continued growth of the domestic economy. However, developments in advanced economies, especially Europe, could disrupt the fragile global economic recovery; although Qatar seems well-placed to face such pressures.”
The BOI survey reveals that the business optimism levels for four of the six parameters have edged up modestly, with the BOI dipping for the remaining two. The BOI for the Volume of Sales parameter has increased to 41 in Q2, while the BOI for Selling Prices has gone by up to 7 over the same time period. The BOI for the Number of Employees parameter has ticked up marginally by 1 point to 20 in Q2. The BOI for New orders has improved by 6 points from 33 in Q1 to 39 in Q2.
Businesses have become more cautious with regard to holding inventories; the BOI for the Level of Stock parameter has registered an 8 points drop from 13 in Q1 to 5 in Q2. The BOI for Net Profits has fallen to 27 from 30 in Q1 suggesting that higher selling prices and volumes will not offset inflationary impact on the cost structure.
Among the various sectors surveyed, there are mixed trends with respect to respective business optimism levels for the six parameters. Even as the manufacturing sector is most optimistic regarding sales and profits, other sectors such as construction and finance, insurance, real estate & business services sectors are most optimistic with respect to new orders. The trade, restaurants & hotels sector has emerged as the most optimistic with respect to hiring plans for Q2.
The D&B survey further reveals that 37% of the respondents expect borrowing conditions to improve during Q2. Availability of finance is edging lower as a business concern; it was a leading concern for 35% of the respondents in Q1 and this number has dropped to 30% in Q2. Raw material costs are the most important business concern in Q2 for 45% of the non-hydrocarbon respondents.
Importantly, in one of the clearest signs that overall outlook is tending to positive, 32% of the firms indicated plans to invest in business expansion. In the hydrocarbon sector, project delays remain the concern for majority (60%) of the respondents in the second quarter.
Shashank Srivastava, Acting CEO of the Qatar Financial Center Authority said “after seeing a tightening of lending conditions last year, we are encouraged to see that based on Dun & Bradstreet’s survey, a significant 37% of the respondents are expecting borrowing conditions to improve during Q2. Additionally, availability of finance is decreasing as a business concern; it was a leading concern for 35% of the respondents in Q1 and this number has dropped to 30% in Q2. We believe that this is indicative of the resilience of the financial services industry in Qatar”
Business optimism indices are commonly used to get a better understanding of the growth expectations of the business community and its response to current developments within an economy. Issued quarterly, the D&B’s Business Optimism Index for Qatar is based on an extensive survey conducted amongst the Qatari business community. The next Business Optimism Index for Qatar will be released in July 2010.