Business | Economy
Inflation and weak dollar push Gulf business confidence lower
Inflation and weak dollar and high oil prices are taking their toll on regional economies as business confidence dwindles, according to the latest survey by HSBC.
- By Nadia Salem, Staff Report
- Published: 00:28 April 10, 2008
Dubai: Inflation and weak dollar and high oil prices are taking their toll on regional economies as business confidence dwindles, according to the latest survey by HSBC.
From a base index level of 100 in the first quarter of 2007, the index fell to 96.8 a year later. This decline has been consistent in each quarter over the past year.
Inflation in particular has resulted in the proportion of businesses claiming a negative impact rising from 36 per cent in the first quarter of 2007 to 61 per cent in the first quarter of this year.
"The region's economy is still booming, adding to strong business confidence and GDP growth, but inflation does play a role. Imports are more expensive and businesses are finding it harder to employ people given the weak dollar," said Monica Malik, economist at EFG Hermes.
Saudi Arabia, Bahrain and the UAE experienced the biggest decline in the business confidence index.
Oman and Kuwait experienced the least change since last year.
"What also impacts businesses is human resource issues. Capacity constraints are an issue as well as increasing prices of raw materials," Malik said.
However, the overall tone of the index is positive: 65 per cent are optimistic about growing their revenues. 28 per cent expect their turnover to increase by more than 15 per cent in 2008, with a further 34 per cent predicting an increase of between 5-15 per cent compared to last year. Over half expect to increase their staff numbers in 2008.
Keith Bradley, regional head of commercial banking, HSBC said, "The slowing of the major western economies, the credit crunch, and the fall in global stock markets inevitably affects the outlook and sentiment of business people."
"The GCC countries are still working together in regard to currency reform and dealing with the weak dollar," Malik said.
The number of businesses expecting a revaluation of their local currency has fallen from 59 per cent in the fourth quarter of 2007 to 41 per cent now.
Around half of all business people believe a revaluation would have a positive impact on their business.
"This general optimism runs right through the region's economy, from the largest institution to the smallest start-up business," said Antoine Cahuzac, chief executive of global banking for HSBC, Middle East.
The first quarter index of 2008 surveyed 1,464 respondents from all six GCC countries, with the majority coming from Saudi Arabia and the UAE.
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