MANAMA: Bahrain’s gross domestic product (GDP) – the widest measure of economic activity – expanded by three per cent in 2016, shows the latest report from the Economic Development Board (EDB).
Released yesterday, the March 2017 Bahrain Economic Quarterly review says continued resilience enabled the country to achieve a slight improvement in 2016 headline growth – versus 2.9pc in 2015 – in spite of historically subdued GDP figures in the region.
The growth, says the EDB, was achieved thanks to stronger momentum in the non-oil sector, which saw a 3.7pc expansion.
Private education and healthcare, construction and financial services were the main growth drivers of the non-oil sector, which now generates as much as 80.7pc of Bahrain’s real GDP.
By contrast, oil sector GDP came in flat last year as a result of a drop in output during the fourth quarter due to seasonal maintenance.
The EDB, which is a semi-autonomous agency formulating Bahrain’s future economic development strategy, sees relative continuity in the kingdom’s near-term outlook due to non-oil momentum drivers.
“Even as ongoing regionwide fiscal consolidation will dampen Bahrain’s growth momentum somewhat, the ongoing implementation of the infrastructure pipeline will serve as a strong countervailing force,” the report said.
Major projects such as Alba Line 6, the airport expansion, and the LNG terminal are expected to support activity across the non-oil economy with a continued, broad-based build-up in activity.
Economic diversification in the country is increasingly driven by smaller sectors linked to demographic and connectivity drivers.
The EDB also sees a growing interest in expanding the model of public private partnerships into areas such as transportation in addition to the established sectors of power generation and housing.
Reviewing other key metrics, the report notes steady growth in Bahrain’s trade volumes since autumn last year.
Consumer price inflation slowed down sharply in the second half of 2016 with food price inflation in fact turning negative.
Private sector job creation remained robust with a 8.6pc year-on-year increase in the number of new jobs in the fourth quarter, in line with the large infrastructure project pipeline.
In fact, the period from October to December saw the fastest pace of employment growth during last year with the total number of jobs in the country reaching 787,190 as of end-2016, said the report.
Credit growth by retail banks has continued to moderate in recent months, with the cost of credit remaining largely flat in recent months with a slight uptick in response to US rate increases.
Bahrain Bourse advanced by 11.1pc in the first quarter this year and the exchange also saw the launch of a new platform for growth companies in March.
According to the EDB, 2017 is generally expected to be a year of transition for the region with ongoing fiscal consolidation and the Opec output cuts likely to curb growth rates while also paving the way for a recovery thereafter.
Business confidence in the GCC opened the year on an upbeat note and should further benefit from greater oil price stability with a moderate upward bias, even allowing for bouts of volatility.
The positive outlook for oil prices should also benefit regional trade and investment flows even as continued fiscal consolidation may curb the rate of improvement.
The combination of a generally more benign near-term global outlook and indications of US reluctance to see rapid monetary tightening is likely to have mainly positive implications for Bahrain.
More dollar appreciation would contain real exchange rate appreciation and the relative attractiveness of emerging market assets.
The report sees revenue diversification playing a greater role in regional fiscal consolidation this year, while the role of public-private partnerships in financing capital expenditure also continues to grow.
Even though consumer price pressures remain generally subdued, some regional economies are seeing a renewed pick-up in inflation due to subsidy cuts.
With regional growth prospects looking historically modest and liquidity conditions fairly tight, the spill-overs are unlikely to make much of a positive contribution to growth in Bahrain.
Regional visitor flows are not expected to grow rapidly, although the country can continue to capitalise on its location, connectivity, and cost competitiveness.
In some cases, these factors seem to be working to Bahrain’s benefit as regional tourists refrain from more long-distance travel.
avinash@gdn.com.bh
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