Bahrain real GDP expands 2.4 per cent Q2 as oil prices climb

Bahrain's economy rose to an annual 2.4 per cent from the previous quarter, according to Bahrain Economic Quarterly Report

Manama in Bahrain. The government offered early retirement to public sector employees to reduce the workforce. Reuters

The gross domestic product of Bahrain, the smallest of the Arabian Gulf economies, accelerated sharply in the second quarter of the year helped by a rise in crude prices and an expansion of the non-oil private sector.

The kingdom’s real GDP growth, an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year, rose to an annual 2.4 per cent from the previous quarter, Bahrain Economic Quarterly Report (BEQ), produced by the Bahrain Economic Development Board (EDB) showed.

“Bahrain’s impressive improvement in the second quarter was thanks to a broad-based recovery across the whole economy. In particular, the expansion of Bahrain’s non-oil GDP stands out in the regional context,” Jarmo Kotilaine, the chief economist, EDB, said. “With the oil industry now only accounting for less than 20 per cent of Bahrain's GDP, growth dynamics are critically linked to non-oil drivers. This compares to the situation in much of the rest of the region where the stronger growth has been led by higher oil prices and production.”

The kingdom’s over all GDP is projected grow by 3.2 per cent this year down from 3.8 per cent in 2017, according to the International Monetary Fund. Bahrain had a 13.2 per cent fiscal deficit last year and 18 per cent in 2016. It has seen its debt to GDP ratio surge to above 80 per cent from 43.6 per cent in 2013.

Bahrain’s Gulf allies – Saudi Arabia, the UAE and Kuwait, this month provided it with a $10 billion aid package to stabilise its economy and prevent a potential credit crunch, That has helped the country to restructure its economy and implement fiscal reforms that will allow Bahrain to rein in its budget deficit.

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However, the financial assistance will provide only short-term relief, helping Bahrain to avoid a currency devaluation, meet immediate debt payments, dispel speculation on the currency peg to the US dollar and allow it borrow on international debt markets at cheaper interest rates, analysts said at the time.

Despite improvement in the headline GDP figures in the second quarter, the ongoing regional economic recovery is progressing “somewhat more slowly than initially expected”, the BEQ noted. While the growth of the six-member GCC is expected to accelerate to 2.5 per cent this year and 3 per cent in 2019, this is below historical levels, it added.

As economic growth picks up in the Gulf, spending increases in the hydrocarbon-dependent economies of the region, growth in cross-border tourism will improve, BEQ said. The Bahraini tourism industry, the report said, continues to expand despite tough economic conditions and visitor numbers are up 5.8 per cent year-on-year. The average number of nights spent in Bahrain per visitor jumped by 16 per cent over the same period.

According to the quarterly report, Bahrain’s non-oil GDP expanded by an annual 2.8 per cent in the quarter ending 30 June, driven by the construction sector that expanded by 6.7 per cent and manufacturing, which climbed 4.5 per cent.

The cumulative total of active infrastructure investments funded by the GCC Development Fund reached $3.7bn in the third quarter of this year, a 12.7 per cent rise from the same period in 2017.

The total value of foreign direct investment also increased. The total value of projects facilitated by the EDB in the first nine months of 2018 climbed 138 per cent year-on-year, the report noted.

Of the 76 companies that have invested in Bahrain in the first three quarters of 2018, 31 belong to the manufacturing sector, highlighting the sector’s strength, the EBD said.