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 Q3 2012.
Background to the Survey
The survey for the Business Optimism Index for Q3 2012 was conducted in June 2012. The global economy continues to move along a path punctuated by volatility and deepening uncertainties. During the first few months of 2012, the economic picture had started looking positive after the sharp slowdown during the last few months of 2011. Market sentiment had improved during Q1 2012 following significant structural, fiscal and monetary policy interventions within the Euro zone.
Additionally, monetary policy easing in some developing countries contributed to a firming of real economic activity in many countries. Growth rates for industrial production, import demand and capital goods sales returned to positive territory with developing countries leading the rebound. However, during the second quarter of 2012, market sentiment again turned pessimistic due to fiscal slippage, banking downgrades, and political and financial uncertainty in the Euro Area.
Surveys of both the manufacturing and service sectors in the Euro zone showed contraction in activity for the months of May and June, while the unemployment rate stood at an all-time high of 11.1% in May 2012. Political uncertainty in some countries combined with concerns regarding the ability and willingness of governments to implement fiscal austerity measures have spooked investors. In the US, growth has been slow with European troubles threatening to derail the recovery.
Data for the US labour market for the month of May saw a much lower than expected gain in employment numbers, while the unemployment rate increased to 8.2% from 8.1%. In China too, growth is expected to ease with a slowdown in the growth rates in trade, industrial production and retail sales.
Qatar’s GDP grew 6.9% in Q1 2012 compared to Q1 2011, driven by government services (13.9%), transport & communications (12.7%), trade, hotels and restaurants (11.4%) and financial & business services (7.2%). The mining & quarrying sector grew 4.6% in Q1 2012.
In 2011, overall real GDP growth was 14.1%. The economy witnessed a six year period (2006-11) of high annual double digit growth, but this high growth period has now moderated, attributed mainly due to the culmination ofthe decade long expansion of LNG and a self-imposed moratorium on new developments. In 2012, GDP growth is expected at 6%, led by an ambitious multi-year infrastructure investment program, which will support growth in the non-hydrocarbon sector.
In addition to infrastructure, government spending on transport, education, health and welfare, underpinned by large budget surpluses, will be the key to this growth. However, projects specifically related to the 2022 FIFA World Cup are unlikely to commence before 2015 as they are still in the planning stages. Non-hydrocarbon growth for the current year is projected by the IMF at 9%. Locked‐in export contracts for LNG and a firm hydrocarbon price outlook will contribute to a sustained fiscal surplus in 2012.
Commenting on the findings of the survey Prashant Kumar, Senior Manager, Research & Advisory at Dun and Bradstreet South Asia Middle East Ltd. said: ‘The BOI survey for Q3 2012 reveals a drop in optimism levels following the cautious approach adopted by the Qatar’s business community. The global economic scenario has witnessed a greater degree of uncertainty and pessimism in the second quarter of 2012 due to fiscal slippage, banking downgrades, and political and financial uncertainty in the Euro area. Qatar’s economic expansion was driven by the mining and quarrying sector in 2011. After witnessing a six year period (2006-11) of high annual double digit growth, the pace of expansion is likely to be around 6% in 2012. The hydrocarbon sector has registered a drop of 16 points to 4. Further, the survey reveals that the non-hydrocarbon sector optimism is weaker in Q3 2012. At a sector level, the transport & communications and construction sectors have recorded improvement in optimism levels for Q3 2012, relative to Q2″.
The composite index for the hydrocarbon sector stands at 4 in Q3 2012 versus 20 in Q2 2012, due to lower BOI scores for profits and selling prices. The BOI for Level of Selling Prices has slid by 25 points to -3 in Q3 2012 as 13% of the respondents anticipate that prices will fall versus 10% that expect prices to rise. The BOI for Net Profit has dipped by 16 points to -8. 32% of the respondents expect that profit levels will not change; while 38% anticipate a decrease and the remaining 30% predict an increase. The BOI for Number of Employees has gained 2 points to 30 in Q3 2012 from 28 in the previous quarter.
The BOI survey shows that the composite index for the non-hydrocarbon sector stands at 27, which is 9 points lower compared to the figure in Q2 2012. The outlook has moderated probably due to the uncertainty surrounding the global economy and the Euro zone crisis. The BOI scores for five of the six parameters have dropped in Q3 2012 compared to Q2 2012 levels.
The BOI for the Volume of Sales parameter has decreased by 16 points to 33 in Q3 2012, while the BOI for New Orders stands at 40 compared to 50 in the previous quarter. The BOI score for Level of Selling Prices remains steady at 6 for Q3 2012. The CPI for the month of May 2012 was 110.1, showing a slight increase of 0.2% when compared to the CPI of April 2012, but a 1.1% increase when compared to the CPI of May, 2011. Annual inflation figures show increases in all the major groups, with the exception of rent, fuel and energy, which registered a drop of 6.0%.
Factors Impacting Business
Among the issues expected to adversely affect operations in Q3 2012, the overall business environment was ranked as the primary influence on operations by 30% of the respondents. Availability of skilled labour, availability of finance, delay in existing projects and no new projects are cited as a challenge by 6% of the respondents in each category. The remaining 12% of the respondents have identified other factors including the impact of the global financial meltdown on regional economies through trade and investments, currency fluctuations and uncertainty in the Euro region. However, 40% of the respondents do not anticipate any factors affecting business operations in Q3 2012. A substantial 46% of the respondents plan business expansions in Q3 2012 whereas 32% do not plan any investment, commensurate with this period.
In the oil & gas segment, 38% of the respondents have identified the current business environment in Qatar as a key factor influencing their business operations whereas the same percentage of respondents do not anticipate any negative factors adversely impacting business operations in Q3 2012. 10% of the respondents foresee project delays and lack of new projects as a leading cause of concern in Q3 2012 while 8% expressed concerns relating to the availability of skilled labor. The remaining 6% of the respondents are concerned about issues including the fluctuation in the exchange rate and uncertain global economic recovery.
Mr Yousuf Al Jaida (pictured) Director of Strategic Development at Qatar Financial Centre Authority said: “It is not a surprise that the overall levels of optimism have fallen given protracted uncertainty in the global economy and the Eurozone crisis. At the same time, in Qatar, growth rates, as expected, are moderating after a six year period of exceptional double digit growth fuelled by ambitious hydro-carbon investments which are now slowing, but GDP growth of 6.9% in the first quarter still remains high by international standards. It is also worth noting that financial and business services within that achieved 7.2% growth. It is indicative of longer term confidence that the non-hydrocarbon sector is showing greater signals of business expansion than was the case last quarter. This underlines the continuing opportunities the QFC Authority has to help promote the financial sector in Qatar and the Gulf region.”
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 October 2012.
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