2013-12-14 14:05:59 - New Country Reports research report from Business Monitor International is now available from Fast Market Research
We expect Bahrain's economy to expand at a moderate pace over 2014 and forecast real GDP growth of 3.4%, down from an estimated 4.3% in 2013. Business activity in the non-oil sector will be under -pinned by elevated public spending and GCC aid, but will remain subject to political risk. Output gains in the hydrocarbon sector will be more limited than in 2013, weighing on the headline growth figure.
A return to pre-crisis rates of real GDP growth above 7% remains off the cards in the near term.
In light of record oil revenues and the weakness of private invest -ment, we expect public spending 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 last -ing 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 an ongoing national dialogue initiated in February 2013.
Key risks to outlook
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A more pronounced regional crisis stemming from an uptick in ten -sions 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 de -terioration 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:
Key risks to outlook
chapter 1: political outlook
BMi political risk ratings
stalemate to persist throughout 2014
- We expect Bahrain's political impasse to remain unresolved throughout 2014, and see few signs that a breakthrough is possible over the coming quarters. The regime will remain firmly entrenched for now, having adopted a successful but short-termist strategy of 'divide and conquer' against the Shi'a opposition.
taBLe: poLitica L 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
Downside risks to economic recovery
- We expect Bahrain's economy to expand at a moderate pace over 2014 and forecast real GDP growth of 3.4%, down from an estimated 4.3% in 2013. Business activity in the non-oil sector will be underpinned by elevated public spending and GCC aid, but will remain subject to political risk. Output gains in the hydrocarbon sector will be more limited than in 2013, weighing on the headline growth figure.
taBLe: econoMic actiVit Y
Housing shortage to remain challenging issue
- Bahrain's government has put forward several initiatives in a bid to address the country's long-running housing shortage, a perennial source of political and social tensions. While these schemes benefit from GCC funding and the involvement of the private sector, we note that high land prices and the current risk-adverse investment climate will continue to undermine housing construction activity over the coming years.
Banking sector: resilient, But reliant on public spending
- We expect the performance of Bahrain's commercial banks to improve slightly heading into 2014. Higher government spending will help to buttress lending activity, and we forecast credit growth of 8.0% and 10.0% by end-2013 and 2014 respectively. However, political risk will continue to weigh on the sector, for a fourth year running.
taBLe: BanKinG sector oVerVie W
regional analysis: G cc outlook
Gcc: Key themes For 2014
- We retain a generally positive view of the GCC's prospects as we head into 2014. While headline growth should slow on account mainly of smaller gains in oil production, the expansion of the non-oil private sector will remain robust. We highlight several themes that will define the region over the coming year, including declining fiscal surpluses; rising rental inflation; continuing diversification; limited increases to private sector employment; and political risks linked to succession issues and sectarianism.
regional analysis: islamic Finance
islamic Banking: continued Growth, But signs of a slowdown
Full Table of Contents is available at:
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