Oil prices are likely to continue trading above $100 a barrel for the next six months, boding well for an upturn in the Saudi economy that would have knock-on benefits for sales and profits of businesses operating in the Kingdom. Yet regional political uncertainty appears to have upset the risk appetite of Saudi Arabia's business leaders, who have considerably altered their investment strategies to reduce their exposure to more volatile asset classes.
All 831 respondents to Banque Saudi Fransi's (BSF’s) second-quarter (Q2) business confidence survey expect oil prices to remain above $100 a barrel for the coming two quarters, including 76 percent supposing prices will stay above $110 a barrel. Higher oil prices and greater production have enhanced the overall expectation about the business community's growth prospects, with a majority of company executives surveyed charting out plans to increase production and hire new staff in the next six months as the vast majority count on a revival in bank lending.
Still, there has also been a shift in investment attitude coinciding with recent weakness in regional equity markets and political uncertainty afflicting several countries in the region. The survey indicated a move is taking place toward regarding low-risk investments in cash and bonds as more favorable than equity investments. A majority of respondents also expect inflation to rise in the coming period after the government handed out one-time bonuses to employees as part of a sweeping SR485 billion citizen support package unveiled in the first quarter.
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