Recent Study: Bahrain Business Forecast Report Q4 2013
[USPRwire, Mon Sep 23 2013] Core Views
Elevated oil prices, a ramp up in government spending, and financial support from Saudi Arabia should help bolster growth in 2013. That said, a return to pre-crisis rates of real GDP growth above 7% remain off the cards in the near term.
In light of record oil revenues, we expect government consumption to outperform over the coming quarters, which should support activity in the non-hydrocarbon economy. Efforts to address the shortage of affordable housing will see government CAPEX accelerate.
Bahrain's reputation as a stable and welcoming location to do business in the Gulf has suffered as a result of the volatile political climate. At the moment, it remains to be seen if Manama will be able to compete with Doha and Dubai in attracting investment into the all-important hospitality and financial services industry.
The economy's medium-term outlook remains contingent upon a lasting solution being found to the current political crisis. Unfortunately, we maintain our relatively guarded outlook on the prospects that the government and opposition can come to some form of agreement in the near term, despite efforts at reconciliation in February 2013.
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Major Forecast Changes
Bahrain's economy will remain on a recovery path heading into 2014, driven by a normalisation of oil output, continued improvements in non-oil business activity, and steadfast fiscal support from the government. We forecast real GDP growth of 4.3% this year and 3.4% in 2014, up slightly from our previous projections of 3.7% and 3.2%. However, the continued uncertainty of Bahrain's political trajectory remains a key downside risk.
Key Risk To Outlook
A more pronounced regional crisis stemming from an uptick in tensions between Iran and the West could see risk premiums spike higher, particularly for Bahrain.
A marked drop in oil prices concomitant with a slowdown in growth in Europe, the US and China would pose a significant risk to the country's near-term growth outlook, and likely lead to a marked deterioration to the country's balance of payments and fiscal dynamics.
In terms of the latter, Bahrain's breakeven oil price is now close to US$120/bbl, which is by far the highest in the Gulf.
Failure to find a lasting solution to the political crisis could see the opposition becoming increasingly radicalised, and resort to militant tactics such as improvised explosive devices. This would result in Bahrain's 'safe haven' status suffering irreparable damage.
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