Bahrain’s non-oil growth to remain steady, says a new study

Manama : Bahrain’s economic outlook looks positive as non-oil growth will be resilient in the next two years, according to a study.

Growth in the non-oil will offset the blow of slow growth in the oil sector and keep the overall growth to a steady 3 per cent, a study by NBK Economics revealed. However, Inflation in the country will rise to 2.5pc in the next two years largely due to VAT implementation as well as housing and food inflation.

Oil sector output, the report said, is set to be flat in 2018 given Bahrain’s participation in the OPEC/non-OPEC oil production cut deal, now extended to the end of 2018. 

“With an average compliance rate of 54pc so far in 2017, Bahrain could potentially cut oil output further in 2018. However, given that its share of overall production cuts is very small, it may not be pressured to more fully comply with the deal. As a result, we see Bahrain likely keeping oil output levels broadly steady,” the report said. 

In 2019, oil activity, according to NBK, is expected to pick up and grow by 1.4pc as the production deal unwinds and on the back of a new 350,000 b/d offshore oil pipeline connecting to neighbouring Saudi Arabia.

Bahrain’s Infrastructure spending is expected to help elevate the non-oil growth. “Non-oil sector growth is projected to hold between a decent 3.0pc and 3.5pc in 2018 and 2019.”

Infrastructure spending has been bolstered by the allocation of funds under the Gulf Development Programme – a pledge by Bahrain’s neighbours in 2011 to provide $10bn in grants over 10 years to boost investment in infrastructure and housing. Data from MEED pointed to an impressive 20pc y/y increase in executed projects in October.

On the expected consumer price inflation, the report stated, “Consumer price inflation is expected to rise in 2018, mainly on the back of a planned value-added tax (VAT) as well as firmer housing and food inflation. 

Latest figures, the report said, showed inflation gaining momentum, reaching an over one-year high of 2.4pc y/y in October. 

Looking ahead, the report said that 5pc VAT, in the second half of 2018, will add around 2pc to the overall inflation rate for one year. “We see inflation rising from around 1pc in 2017 to 2.5pc in 2018,” the report said adding: “We expect inflation to remain at or around that rate in 2019, given the economy’s decent underlying growth performance.”