Rocketing inflation across the Gulf has caused a drop in business confidence, lender HSBC said in a report on Wednesday.
The quarterly survey by the bank of confidence levels in the business community revealed that high inflation and the weakness of the US dollar are contributing to a more negative outlook for business.
The continuing high price of oil is also now perceived to be having a negative impact on business, HSBC said.
Keith Bradley, regional head of commercial banking at HSBC, said confidence levels had shown a consistent decline over the past year.
“Our index, a survey of confidence levels among GCC business people, has fallen from 100 to 97.8 over the course of 2007,” Bradley said. “This decline has been consistent in each quarter over the past year.”
Inflation in particular is contributing to the decline in business sentiment, with the proportion of businesses claiming a negative impact rising from 36% in Q1 2007 to 61% in the first quarter of this year.
However, despite the warning signals, the results were generally positive with 65% of business owners optimistic about growing their revenues.
Almost 30% expected their turnover to increase by more than 15% in 2008, with a further 34% predicting an increase of between 5-15% compared to last year.
Nearly 55% of business owners across the Gulf expect to increase their staff numbers in 2008, the research found.
”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. However, the Gulf’s economies continue to expand, and business people’s outlook continues to be broadly positive,” Bradley said.
On the issue of regional currencies, the number of businesses expecting a revaluation of their local currency has fallen from 59% in Q4 2007 to 41%.
Around half of all business people (48%) believe a revaluation would have a positive impact on their business.
Inflation in the UAE hit a 19-year high of 9.3% in 2006 and probably reached 10.9% last year, the National Bank of Abu Dhabi (NBAD) said last month.
Gulf Arab states, such as the UAE, Saudi Arabia and Qatar, which peg their currencies to the dollar, are struggling to control surging inflation, fuelled by a five-fold increase in oil prices during the last six years and lower interest rates which are reduced in line with easing US monetary policy.
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