Manama: Bahrain’s economic growth this year is set to be in line with last year despite continued downward pressure on oil prices, finds the latest assessment by the Economic Development Board (EDB).
The EDB’s Bahrain Economic Quarterly report for the first three months of the year, however, sees the possibility of a slight moderation in GDP growth next year.
GDP or gross domestic product is the value of all the goods and services produced in an economy for a given year.
The report said growth was dampened somewhat in the second half of 2015 but reached just under three per cent during the year as a whole, said the semi-autonomous agency responsible for formulating Bahrain’s future economic strategy.
In spite of important elements of continuity, the continued downward pressures on oil prices, along with steps towards fiscal re-engineering, is likely to curb growth somewhat in the near- to medium-term.
This negative impact is likely to be countered to a significant extent by the large pipeline of infrastructure projects, it added.
The EDB says growth in Bahrain continues to be firmly led by the non-oil private sector, an important source of continuity in the current environment.
Reviewing last year’s data, the report found that the non-oil sector expanded by 3.9pc with particularly strong growth in construction, private education and health care, and the tourism sector.
However, overall oil production fell by 0.9pc, in spite of continued gradual output gains from the onshore Bahrain field.
As much as 80.3pc of the economy’s real GDP and 84.9pc of its nominal GDP was generated by an increasingly diverse non-oil sector last year.
The main difference between nominal and real values is that real values are adjusted for inflation, while nominal values are not.
EDB has noted a 12pc increase in the value of non-oil merchandise exports since 2010.
A rapid build-up of activity is underway in GCC-funded infrastructure projects.
The pick-up in momentum has been particularly evident in recent months with respect to the GCC Development Fund, just over $6 billion of which has been allocated to individual projects as of March this year. As many as $3.8bn worth of projects were tendered by the beginning of March this year and project awards amounted to $3.2bn.
The EDB report says that a broad range of privately-funded projects are making good progress with several key product launches in the first quarter this year.
Consumer prices in Bahrain increased by a modest 1.9pc last year driven mainly by a 4.7pc increase in housing, water, electricity, gas and other fuels.
Alcoholic beverages and tobacco increased by 3.5pc followed by 3pc in healthcare services prices.
The government has modified subsidies for liquid fuels and utilities and the impact of subsidy reforms on inflation is likely to be temporary, the report says.
Reflecting a benign liquidity situation and strong local banks, Bahrain has seen a clear acceleration in bank lending in recent months.
Bank deposits are continuing to grow and loan-to-deposit ratios remain historically low.
Domestic credit growth has continued at a brisk pace in spite of indicators of liquidity tightening in much of the GCC region.
Total credit growth peaked in the final quarter last year at a 10pc annual pace.
Credit growth was driven by the rise in government borrowing in the last quarter even though government loans accounted for only 4pc of total loans made in December last year.
Business loans, which account for the highest proportion of all bank loans borrowed in December at 53pc, grew by 5pc year-on-year (YoY).
Most loans borrowed went to the construction and real estate and trade sectors, reflecting a strong momentum of the infrastructure pipeline.
Personal loans, holding the second largest share of total loans at 43pc, rose by 14pc YoY in December.
A measured pace of policy tightening by the US Federal Reserve is likely to translate into at best modest increases to the cost of capital in Bahrain.
In line with regional trends, Bahrain’s stock market remained under some downward pressure in the first quarter this year.
The EDB sees regional disposable incomes likely growing slower than in recent years, which may reduce intra-regional travel and discretionary spending.
Bahrain’s offering as a preferred place to do business is likely to benefit from cost competitiveness and a central location, however, liquidity conditions in the financial sectors are growing tighter, which may push up the cost of capital and increase reliance from funding sources from outside the region.