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 2012.
Background to the Survey
The survey for the Business Optimism Index for Q2 2012 was conducted in March 2012, amid a scenario of slight pick-up in the outlook for the global economy. The European crisis is now contained due to decisive action taken by financial authorities in the region, which will lower financial tensions and global risk aversion.
The European Central Bank has decided to grant banks unlimited three-year loans at a very low interest rate of just 1%, which will remove some pressure from the banking sector and the risk of a systemic panic in global financial markets. However, the largest contribution to the rebound in global economic activity will come from resurgence in emerging economies.
Growth in the emerging markets will be underpinned by strong infrastructure investment, a soft landing in China rather than an abrupt deceleration in activity and favorable terms of trade for commodity exporters. Also, the tentative US recovery seems to have taken hold. GDP growth accelerated sharply during Q4 2011; reaching an annualized rate of 3%, up from 1.8% during the previous three months.
Lower cutbacks in state and local government spending, increased consumer spending driven by job creation and wage growth, strong non-residential investment, and buoyant exports should continue to support growth in the world’s largest economy.
Not withstanding the Arab Spring and growing uncertainty faced by the countries in the Middle East, Qatar continues to enjoy robust economic growth and stability compared to many of its peers in the region. Being an energy exporter, Qatar will continue to record huge budget and current account surpluses as oil prices are expected to remain high.
According to IMF estimates, exports of crude oil and refined petroleum products in 2012 will be US$ 35.5 bn, while LNG and related exports will amount to US$ 61.3 bn. The current account surplus is projected at 26.3% of GDP for the current year. According to estimates by the Qatar Statistics Authority, the mining & quarrying sector contributed 58.3% of Qatar’s total nominal GDP in 2011. The GDP of this sector for 2011 is estimated at QAR 364.46 bn, an increase of 52% over the previous year.
In Q4 2011, the gross value added of this sector is estimated at QAR 96.11 bn, which represents an increase of 41.9% compared to Q4 2010. The real GDP of the mining & quarrying sector grew 15.7% in 2011 compared to 2010. However, during 2012, real GDP for the sector is expected to drop below 3%, as Qatar met its targeted level for liquefied natural gas output in 2011, leaving little room for LNG to remain the key driver of high economic growth rates in 2012.
Commenting on the findings of the survey Prashant Kumar, Senior Manger, Dun and Bradstreet South Asia Middle East Ltd. said: ‘The survey has revealed that Qatar’s business community continues to hold optimism levels steady, albeit at a slightly lower level compared to the first quarter of 2012. The outlook for the global economy has improved from the previous quarter due to stability in the Euro zone and recovery taking hold in the US. However, downside risks remain and could threaten the fragile recovery.”
“Also, Qatar’s economic growth will moderate to 6% this year, with growth in the hydrocarbon sector estimated at around 3%. The non-hydrocarbon sector has registered a drop of 4 points in its composite index value falling to 36 from 40 in Q1 2012 . While the manufacturing sector has recorded an improvement in optimism, the financial, real estate & business services sector has posted the largest decline among all sectors. The survey for the hydrocarbon sector shows that businesses expectations are weaker for Q2 2012.”
The composite score for the hydrocarbon sector stands at 20 points in Q2 2012 versus 29 in Q1 2012, due to lower BOI scores for profits and hiring. The BOI for Level of Selling Prices has remained steady; it stands at 22 in Q2 2012 compared to the score of 23 in Q1 2012. 62% of the respondents in the hydrocarbon sector are predicting that prices will not change in Q2, while 30% of the firms anticipate a rise in price level. The Net Profits expectation of the industry players has moderated again, the BOI for which is recorded at 8 in Q2 2012 compared to 26 in the last quarter. 58% of the respondents expect that profit levels will not change; while 17% anticipate a decrease and the remaining 25% predict an increase. The BOI for Number of Employees has dropped by 14 points; it stands at 28 in Q2 2012 compared to 42 in Q1 2012.
The BOI survey shows that the composite index for the non-hydrocarbon sector stands at 36, which is 4 points lower compared to the value in Q1 2012. The outlook has moderated only slightly and that is probably due to the fragile state of the global economic recovery. The BOI scores for four of the six parameters have dropped in Q2 2012 compared to Q1 2012 levels. The BOI for the Volume of Sales parameter has decreased by 4 points to 49 in Q2 2012, while the BOI for New Orders remains steady at 50.
The BOI score for Level of Selling Prices stands at 6, losing 8 points from the previous quarter’s reading of 14. The CPI for the month of February, 2012 was 109.9, showing an increase of 0.3% compared to the CPI of January 2012, but an increase of 1.2%, compared to the CPI of February, 2011. Annual inflation figures show increases ranging between 2.3% and 8.1% in all the major groups, with the exception of rent, fuel and energy, which registered a drop of 6.1%.
In line with the moderation in outlook for demand and prices, the Net Profits score is down by 5 points to 35. At 40, the BOI for Number of Employees remains steady compared to the Q1 2012 figure of 41. Scoring 31 points, the BOI for Level of Stocks has increased by 9 points from the Q1 2012 score of 22, and is the only parameter to register an increase this quarter.
Factors Impacting Business
Among the issues expected to adversely affect operations in the second quarter of 2012; shortage of skilled labour and availability of finance continue to be ranked by businesses as the primary influences on their business. Inflationary pressure is the leading concern for 8% of the respondents. 31% of the firms do not expect any negative factors to impact business operations. Other factors that might influence business operations in Q2 2012 which have been cited by respondents include market conditions, competition, and lacklustre global economic growth.
Also, 36% of the firms plan to invest in business expansion in Q2 compared to 45% last quarter; while 31% will not invest in expansion.
In the oil & gas segment, availability of skilled labor and inflationary factors are leading concerns, but for 28% of the respondents there are no negative factors that could adversely impact business operations in Q2 2012. Other factors cited by respondents include no new projects, the exchange rate, government policies and project delays.
Mr Yousuf Al-Jaida Director of Strategic Development at Qatar Financial Centre Authority said: “Clearly business sentiment in Qatar continues to be affected by the fragile state of the global economy. Looking specifically at the Finance, Real Estate & Business Services sector, I think that despite the overall drop in optimism this quarter, it is encouraging that some 41% of respondents still plan to invest in business expansion, which is higher than the 36% average for the Non-hydrocarbon sector as a whole. “
“We at the QFC Authority continue to support the development of the financial services sector in Qatar through our hub strategy focusing on asset management, reinsurance and captive insurance. [Just this week we announced a new strategic partnership between the Qatar Asset Management Company (“QMAC”), a collaboration between the QFC Authority and the QIA, and Barclays Natural Resource Investments (“BNRI”), a division of Barclays Bank PLC where QAMC will be co-investing US$250 million in BNRI’s current and future portfolio companies. I think this is an excellent example of how Qatar, and the QFC, are providing an ideal business environment based on a solid economic foundation and nurturing a strong sense of business optimism, further driving growth and investment in financial services.]”
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 2012.
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