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Consumer Confidence Levels in Saudi are Second Highest Worldwide

Saudi Arabia : 24 May 2011

A recent survey showed that consumer confidence for the first quarter improved in the Kingdom, as well as in other MENA (Middle East and North Africa) states, despite a deterioration in the levels of confidence found in the periphery of Europe as the financial situation in Portugal came to a head.

Consumer confidence in Saudi Arabia was second only to India in the latest quarterly survey, according to Reuters. The UAE also experienced growth in the double-digits.

Scores for the Kingdom surged to 118, an 11-point increase from the final quarter of 2010, in the most recent global consumer confidence poll completed by market data and analysis firm The Nielsen Company.

Confidence in India continued at the highest levels with a 131-point score, unchanged since the fourth quarter of last year. This was under India’s record reading of 137 reported in the last half of 2006. That figure was the highest ever in the history of the Nielsen index on consumer confidence.

Chief economist for the Banque Saudi Fransi, John Sfakianakis stated that consumer confidence in the Kingdom rose as a result of optimism in the wake of government programs centering on social assistance. The most influential of these was the proposal to construct 500,000 housing units. Other programs included additional investments in the Real Estate Development Fund, a bonus for public employees equivalent to two month’s of salary, a raise of 15 percent to meet the rising costs of living, the introduction of minimum wage as well as unemployment checks beginning later on in 2011. The majority of Saudi nationals work in the public sector. Other firms within the Kingdom followed this announcement with bonuses to their staff as well, with a particular focus on Saudis.

It is natural that consumer confidence improved after both private and public sector employees were given one-time bonuses in March. The government handouts strengthened those improvements, according to Sfakianakis.

He added that the levels of consumer confidence in the coming quarters will be interesting to watch as the shorter term support programs the government has in place will begin to taper off. At the same time, other programs such as home construction will be kicking off.

The consumer confidence in Egypt also increased due to optimism, an expected regime change and anticipated political reform. Consumers may still interpret the increasing pressures of inflation – currently running at 12 percent.

In the UAE local economic recovery is contributing to increasing consumer confidence, which is likely to continue according to Sfakianakis.

National Commercial Bank’s chief economist Jarmo T Kotilaine stated that these survey results are evidence of dual-track worldwide economic recovery that will continue for some time, with the West gradually emerging from massive structure crises and emerging markets feeling the benefits of solid macroeconomic fundamentals.

Data for Saudi Arabia is fairly consistent with other facts evident in the survey, as well as the trading volumes and real economic indicators like the Tadawul All-Share Index (or TASI). Bank lending is also on the path of recovery, despite extremely modest increases in real terms. Kotilaine stated that when taken collectively, this suggests that the government’s proactive policies have been successful at ensuring continuity in the economy despite the turmoil felt across the region and heavy economic risks felt worldwide.

The effects of Saudi policy are in fact enviable by global standards, thanks to ensured stability and continuity. One of the few nations on the planet that has seen significant improvement in the growth outlook over recent weeks, Saudi consumers have felt the benefit of added bonuses and a growth paradigm that is more inclusive than ever.

Although the outlook continues to be positive, the challenge of translating those levels of optimism into sustainable improvements in private industry investment and consumption remains. Kotilaine noted that bank lending needs to see a decisive revival and capital markets need normalization to gain more momentum before sustained improvements are a certainty.

It is problematic that the global risk profile is still exceptional. Economic policy in the United States continues to be unsustainable, the Euro zone continues to experience sovereign debt crises and pressures of inflation and a tightening of policies has been seen in emerging markets. All of these factors have created substantial market volatility, as well as investor risk aversion, in the past. Considering the circumstances, Saudi Arabian growth may continue to depend on government investments and the oil industry (and disproportionately so) for a certain amount of time. By the world’s standards however, even this cautious stance has substantial economic resilience.

China climbed 8 points in the index with a score of 108 for Q1, evidence that income growth beyond inflation is present in rural areas, according to the Nielsen Company.

The top ten readings on the index were led by India with 131 points, Saudi Arabia with 118, and Indonesia with 116 points. Australia landed in fourth with 110 points, along with the Philippines and Switzerland at 110 points each. Singapore and the UAE had 109 points each, China came in with 108 and Hong Kong had 107 points. Those nations that scored below 100 points are marked with a pessimistic outlook.

The survey was compiled during the time from March 23 to April12 and reaching 28,000 consumers within 51 nations, according to Reuters. It centers on consumer confidence levels within the job market, as well as personal finance statuses and the readiness of consumers to spend.

Last month, when Portugal decided to follow the example of Ireland and Greece in seeking an international bailout, the nation fell to the bottom of the Nielsen Company’s quarterly global survey covering consumer confidence levels.

Overall global consumer morale experienced slight improvements over Q4 2010, mainly due to fast growth in Asian economies and sharp increases seen in Germany, the largest economy in Europe. Consumer sentiment in the United States also rose slightly.

Asia topped the list of optimistic markets and Europe boasted nine out of the ten most pessimistic markets. In the Asian Pacific region 63 percent of consumers stated that employment prospects ranged from good to excellent, an increase of 11 percentage points from the quarter before. This indicates that Asians will increase their spending over the coming months.

Levels of confidence in Asia, Africa, Germany and the Middle East have risen to the highest levels seen since the survey began in 2005.

Confidence in Egypt increased by 29 points to reach 102, the largest surge in all of the 51 markets included in the survey and positive news after the social upheaval that forced out President Hosni Mubarak.

Consumer expectations have risen with the joy of gaining political and civil freedoms in Egypt. Also, the first experience of genuinely free voting has consumers hoping for rapid economic growth, according to Nielsen Egypt’s managing director Khaled El Tohami.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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