Inflation batters Saudi business confidence

CONFIDENCE HIT: The rising cost of living is taking its toll on Saudi business confidence. (Getty Images)

Accelerating inflation and high real estate costs are having a negative impact on businesses in top oil exporter Saudi Arabia, where the rising cost of doing business is weighing on confidence, a SABB bank survey showed.

The survey of 537 executives found 61 percent were concerned about inflation and 68 percent said rising property costs would hurt their operations, SABB, HSBC's Saudi affiliate, said in a quarterly survey received late on Saturday.

Inflation in the largest Arab economy hit 10.4 percent in May, just off a more than 30-year peak a month earlier, as rents and food costs soared.

Largely weighed by concerns over rising prices, SABB's third-quarter business confidence index declined 5.2 percent from the previous quarter, it said.

"Inflation is one of the key factors denting business confidence," SABB said. Of the 61 percent of respondents who are concerned about inflation, 71 percent expected rising prices to have a negative impact on their businesses, it said.

"Although the various subsidies announced will have an impact in terms of cushioning the effects, prices will continue their upward trend," said SABB, which raised its 2008 inflation forecast to 9.3 percent from 7.9 percent.

Real estate prices were "reaching unattainable levels for most people" while labour supply constraints are hindering business expansion in the non-oil sector, SABB added.

Tighter funding due to the global credit crisis also impacted business confidence, with only 38 percent of respondents expecting bank lending to be "positive" this quarter, compared with 71 percent in the second quarter, SABB said.

A majority of respondents, 73 percent, said they did not expect Saudi Arabia to revalue its dollar-pegged riyal in the next two quarters.

But there was optimism among executives due to high oil prices, which are spurring an economic boom in the region, SABB said.

Some 54 percent of executives surveyed said they expected oil prices to climb above $140 a barrel, while none thought oil would fall below $110 per barrel, it said. (Reuters)

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READERS' COMMENTS

Depeg Depeg Depeg
Posted by Kaptain, Amman, UAE on Sunday 20 July 2008 at 15:06 UAE time


What's in not to depeg? The strongest commodity on earth being petrol and 1/4th being drilled from Saudi Arabia but the decision making to depeg is totally lacking. This beats sanity.

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