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Bahrain Expected to Register Real GDP Growth of 3.6% in 2012

Middle East : 18 March 2012

Source: Arab News

The real GDP growth in Bahrain is expected to have come down to 1.5 percent in 2011, as per IMF data, compared to a strong growth of 4.1 percent in 2010 as political unrest in the country slowed down economic activity. However, the economy is expected to recover strongly by 3.6 percent in real terms in 2012 as oil prices are expected to remain high and other sectors such as tourism and financial sector recover after a turbulent 2011, according to a report by Global Investment House (Global).

It is important to note that unlike other GCC countries, Bahrain has a relatively lower reliance on oil and gas sector, which accounts for 24.8 percent of GDP as at the end of 2010. Thus the economy is less vulnerable to change in oil prices. However, at a time of rising oil prices, the benefit will also be limited by this fact.

Rewinding back to the period just after the financial crisis, Bahrain was hit hard during 2009, recording negative year-on-year growth rates in all sectors. The global financial crisis brought an end to the rapid economic growth that the GCC region had been witnessing with Bahrain being no exception. The impact came mainly through the sharp fall in oil prices and the tightening of credit conditions. Economic activity slowed sharply, reflecting difficulties in the financial services sector and flat production of hydrocarbons. Other important sectors such as aluminum and petrochemicals also suffered with their outputs down 2.7 percent and 2.6 percent respectively. The real estate sector also declined due to lack of liquidity and credit from banks and a fall in investor confidence.

However, since the decline of nominal GDP by 12.8 percent in 2009, the nominal GDP has recovered strongly by 17.6 percent and 16.6 percent respectively in 2010 and 2011 helped by high oil prices and global economic recovery. Along with oil and gas sector, financial sector is also a major component of the economy.

In nominal terms, as per IMF, nonoil GDP increased by 6.2 percent in 2010 after a decline of 4.3 percent in 2009. On the other hand, oil GDP increased strongly by 22.5 percent in 2010 reflecting the impact of higher crude oil prices. OPEC basket price increased by 26.8 percent to an average of USD77.4 per barrel in 2010. However this growth came on the back of massive decline in Oil GDP in 2009 by 29.4 percent in the aftermath of the global financial crisis which pulled down oil prices amidst the global economic recession.

As can be seen in the graph below, the share of oil and gas sector in the nominal GDP jumped to 29.2 percent in H2, 2011 compared to 24.8 percent in 2010. This has been largely due to a spike in oil prices to above $100 per barrel as a result of the Arab Spring, the Global report said.

The three main sectors of Bahrain’s economy are oil & gas, finance, and manufacturing. Crude Oil & Natural Gas still accounted for the biggest contribution to GDP in 2010, with a share of 24.8 percent, followed by Consolidated Financial Institutions and Manufacturing which accounted for 20.6 percent and 15.4 percent respectively.

Compared to its regional peers, in the GCC, Bahrain is the least oil dependent nation. However, it still forms a major proportion as mentioned above. The contribution has picked up in 2010 and likely to remain high in 2011 due to sustained rise in crude oil prices.

Manufacturing sector also grew strongly in 2010 by 20.5 percent. Manufacturing sector is dominated by Bahrain Petroleum Company, Gulf Petrochemical Industries Company and Aluminum Bahrain which make up for around 70.0 percent of the manufacturing sector as of 2008 according to Bahrain Economic Development Board. The recovery in petrochemical prices and aluminum prices has helped the growth in the sector.

Financial services which are the second largest sector witnessed modest growth in 2010 of 5.8 percent after a decline in 2009. The financial sector in Bahrain was adversely affected as credit markets tightened in 2009 reducing the flows of foreign investment.

The other notable sectors in 2010 have been transport, storage and communication which grew by 9.1 percent and trade which grew by 7.8 percent. Other government services also showed a modest growth of 3.0 percent in 2010. In terms of 4-year CAGR, the quarrying sector has witnessed the strongest growth of 22.7 percent, the Global report said.

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