2013-09-18 08:51:43 - Recently published research from Business Monitor International, "Bahrain Business Forecast Report Q4 2013", is now available at Fast Market Research
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.
Full Report Details at
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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.
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.
Partial Table of Contents:
Major Forecast Changes
Key Risk To Outlook
Chapter 1: Political Outlook
BMI Political Risk Ratings
Rising Radicalisation And Limited Odds Of Breakthrough
- Bahrain's long-running political crisis has entered a more acute phase over the last few months, marked by increasingly frequent incidents of violence and an intensification of repressive measures on the regime's part. This continues to pose a key downside risk to the country's economic outlook, while limiting the chances of a near-term political breakthrough.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Sun, Sea, And Sectarianism: Prospects For Future Stability Assessed
- Bahrain's political future is complicated by growing tensions between the Sunni elite and the Shi'a majority, labour and population imbalances, the need to stay on side with both Iran and Saudi Arabia, and economic vulnerability. We believe the most likely long-term scenario is for democratisation to be brought about by political and economic necessity, although there is no guarantee that this would be peaceful.
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
Political Risk Weighing On Economic Revival
- 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.
TABLE: ECONOMIC ACTIVITY
Weak Fiscal Outlook And High Uncertainty
- Despite a relatively successful US$1.5bn sovereign bond offering on July 24, Bahrain's sovereign risk profile remains precarious. The country's medium-term fiscal outlook is dire relative to the rest of the GCC, while the long-running political crisis shows no sign of ending. We forecast Bahrain's fiscal deficit to reach 3.3% of GDP in both 2013 and 2014, from 2.0% in 2012.
TABLE: FISCAL POLICY
Improving Outlook, But Downside Risks Remain
- The Bahraini commercial banking sector continues to face a number of challenges, including exposure to the ongoing political tensions and an uncertain domestic operating environment. That said, an ongoing economic recovery and a better outlook for the real estate sector this year mean that the growth prospects for Bahrain's banks have slightly improved, and we retain our credit growth forecast of 8.0% for end-2013, up from 6.2% in 2012.
TABLE: BANKING SECTOR OVERVIEW
Growth Slowing, But Huge Potential Remains
- Islamic Finance is set for continued growth as several countries vie to become global centres, although expansion rates have peaked. At present, we expect Malaysia to remain the global leader in Islamic banking, although there will be concerted competition from Dubai. In addition, there is huge growth potential in India, Nigeria and Thailand.
TABLE: ISLAMIC BONDS & LOANS
Chapter 3: 10-Year Forecast
The Bahrain Economy to 2022
Long-Term Economic Outlook
Full Table of Contents is available at:
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