Improving economic conditions could take some time before they reflect on Saudi firms' bottom line, according to a survey by Banque Saudi Fransi.

Almost half of 824 surveyed firms expect inflation to rise in the coming two quarters and only a third consider boosting their inventories during this period, the survey's results showed.

'Optimism is surely on an upward curve, (but) managers think it could take some time before the better economic climate filters down to their bottom line,' the bank said.

Businesses are still waiting for hard evidence before they start adjusting their plans to their assumptions of a likely pick up in consumer demand in 2010, it added.

'Companies are, in general, certain that the worst of last year's slowdown has passed; what they are divided on is when business activity and demand will pick up substantially'.

The growth in the private sector - which accounts for about 46 per cent of the kingdom's gross domestic product (GDP) - hit a 14-year low of 2.5 per cent in 2009.

The global economic slowdown coupled with a drop in oil revenues - the domestic economy's backbone - slowed the Saudi economy to the verge of contraction in 2009, likely eking out growth of 0.15 per cent compared to 4.3 per cent in 2008.

Problems were further aggravated by multi-billion dollar debt defaults last year by some family-owned firms, which made banks more meticulous on lending and hurt profits after rapid lending growth over the previous six years.
        
As a result, unemployment among the native Saudi population more than doubled to 15.2 per cent in 2009 from 6.2 per cent a year earlier, Fransi said in a previous report.

'A pick up in the pace of bank credit is a precondition to an economic revival, particularly for the private sector,' Fransi said in Sunday's survey.

Caution appears to still prevail: almost 59 per cent of respondents said lending fell below their expectations, down from 61.8 per cent in a previous survey during the fourth quarter of 2009.

The survey also showed that just a third of surveyed firms plan to raise their prices in the next two quarters down from 35.9 per cent in the fourth quarter's survey while those planning to lower prices rose to 9 per cent from 8.2 per cent.

Saudi imports fell by more than a fifth in 2009 as firms adjusted to a slowdown in domestic demand. 'The survey showed businesses have not shifted their perspective much since in the fourth quarter (2009),' Fransi said.

Most respondents continue to consider a hiring freeze over the coming two quarters, albeit at a lower proportion: 47.8 per cent of them said they would maintain the freeze, down from 53.3 per cent in the fourth quarter, Fransi added.-Reuters