Local businesses expect growth

Despite downturn, a report says more than 90% expect profits to rise in the last three months of the year.

Local businesses expect a profitable quarter, in spite of the worldwide economic downturn.

More than 90 per cent of local business owners expect their sales and net profits to increase in the last three months of this year, according to a survey reflecting some optimistic sentiment despite the global economic downturn. Of all the sectors participating in the survey of business sentiments conducted by Dun & Bradstreet, the financial sector expressed the highest optimism, with 100 per cent of respondents saying they expect sales and profits to grow this quarter.

Next was the construction, property and business-services sector, in which 94 per cent of respondents expected to see higher profits. "While the full effect of the global economic downturn and US financial crisis on the UAE economy is yet to be determined, the results of the Business Optimism Index evidently point towards strong business sentiments and significant expansion across all sectors in the economy," said Rajesh Mirchandani, the chief executive of Dun & Bradstreet for South Asia and the Middle East.

"Over 50 per cent of businesses state that business expansion is at the top of their investment agenda in the next quarter, indicating that the UAE is bucking the global downward trend, and continues to be an attractive place to do business," he said. However, the survey was conducted between Aug 16 and Sept 5 and completed too soon to reflect the effects of the most recent round of global financial turmoil, according to Rajni Thakur, a senior economist with the financial data firm.

Ms Thakur said that while the next edition of the Business Optimism Index, due out early next year, would probably reflect a slight downturn in sentiment, the basics of the UAE economy still gave reason to remain optimistic. "Many of the factors that point to growth in the UAE are reliant on strong demand from the local economy. Since that is not likely to go down, I expect there to be relatively continued optimism," she said.

Although the general outlook was positive, the report listed several key obstacles to growth, including inflation, which 45 per cent of businesses named as their first concern. Prices are likely to continue to rise next year, the report predicted, since 62 per cent of the businesses surveyed expect to increase their selling prices in the next few months. Another worry is labour shortage, with 22 per cent of business citing it as a major difficulty. More than half of the businesses surveyed expect to increase their employee count in the coming year, according to the report.

Rising funding costs were also a key weight on business optimism. With 54 per cent of respondents saying they will depend on bank loans to fund their businesses, and that the rising cost of borrowing in the UAE is likely to cut into profits. Interest rates have risen in recent months, with the Emirates interbank offer rate (Eibor) more than doubling in the past six months. Although the Central Bank cut interest rates yesterday in tandem with the US Federal Reserve, it is not yet clear whether consumers will experience lower borrowing rates as a result.