2018 OUTLOOK Bahrain Economy Upbeat

Bahrain’s economic outlook for 2018 stands on positive ground with a resilient non-oil sector expected to keep overall growth at stable levels. A steady pace of around 3% overall growth in 2018 and 2019 is anticipated and will balance and offset any frailty in the oil sector.

In its latest update on Bahrain’s economy, National Bank of Kuwait (NBK) reports that the Oil sector output for 2018  is set on a flat horizontal due to Bahrain’s partaking in the OPEC/non-OPEC oil production cut deal, now extended to the end of 2018. However budget deficit is expected to gradually narrow given ongoing fiscal consolidation efforts as well as improvement in revenues.  In 2019 oil activity is predicted to pick up and grow by 1.4% as the production deal unwinds on the back of a new 350,000 b/d offshore oil pipeline connecting to neighboring Saudi Arabia. The new pipeline is part of Bahrain’s plans to expand its refinery capacity. It will replace the 230,000 b/d pipeline, which the government-run Bahrain Petroleum Company was forced to temporarily close in November 2017 though production was restored within a couple of days.

Growth from infrastructure investments increased and the financial stability of the Kingdom has been observed in the last 4 Quarters and these positive indicators reflect government’s efforts to enhance the national economy which faces challenges at the local, regional and international levels.

Bahrain is looking into expanding output from its domestic field by tapping into unconventional gas. To expand its energy mix, the nation is building its first liquefied natural gas (LNG) terminal, expected to be completed in 2019 which will allow the import of up to 0.8 billion cubic feet of gas per day for domestic use. Saudi Aramco could link up the terminal with other GCC countries. This would in effect turn Bahrain into a hub for LNG imports for the region.

Over the past few quarters infrastructure spending has been bolstered by the allocation of funds under the Gulf Development Program – a pledge by Bahrain’s neighbors in 2011 to provide $10bn in grants over 10 years to boost investment in infrastructure and housing. Data from MEED pointed to an impressive 20% y/y increase in executed projects in October 2017. Key areas of project activity include the aluminium sector, airport expansion, social housing, utilities, roads, renewable energy and telecoms. There are also plans for a second causeway linking Bahrain and Saudi Arabia, connecting Bahrain to the GCC rail network.

Non-oil growth has also been supported by healthier gains in the financial services sector, which averaged at an impressive 6.4% y/y over the first three quarters of 2017, much higher than the 3.6% y/y average recorded during the same period in 2016. Similar trends are being witnessed across most other non-oil sub-sectors, including the transportation & communications and social & personal services sectors, which were up an average 7.7% y/y and 11.6% y/y, respectively, during the same period. Growth in manufacturing activity was more muted in 2017 due to some production disruptions at the Alba aluminium smelter (one of the largest in the world). With these disruptions resolved, growth in manufacturing activity should recover in the near-to-medium term. The pace of employment growth has been strong if volatile since 2H14, helped by solid economic growth including a pickup in activity in the construction sector.

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 showed inflation gaining momentum, reaching an over one-year high of 2.4% y/y in October. After falling sharply in 4Q16 as the initial impact of subsidy cuts petered out, food price inflation returned to positive territory in mid-2017 and is expected to rise further on the back of planned excise duties on tobacco and soft drinks. At 5%, the VAT – which we assume will be introduced in the second half of 2018 – is projected to add around 2% to the overall inflation rate for one year. We see inflation rising from around 1% in 2017 to 2.5% in 2018. We expect inflation to remain at or around that rate in 2019, given the economy’s decent underlying growth performance. Budget deficit is expected to gradually narrow though still high given ongoing fiscal consolidation efforts as well as some improvement in revenues.


Fiscal reform has so far been centered on rationalizing subsidies. Unlike other GCC countries, government spending in Bahrain is virtually unchanged from 2014 levels, highlighting the challenges in cutting areas such as salaries and subsidies. The VAT should raise around $0.3 billion (approximately 1% of GDP) in additional tax revenue per year. With the cumulative sum of GCC grant allocations currently standing at less than $1.3 billion year-to-date, according to the Economic Development Board, active projects are projected to continue to grow at healthy rates.

Key current projects include Alba’s $3 billion expansion project, a $1.1 billion airport expansion and a gas plant project worth $355 million. With the budget deficit hovering at high levels, the government will continue to look to domestic and international bond markets to plug the shortfall.


Bahrain Tourism projects investment reaches US $ 13 Billion

The Bahrain Economic Development Board (EDB) recently revealed investment in Bahrain’s tourism infrastructure reached over US $13 billion. The figure covers 14 prominent projects that will further boost growth in the Kingdom’s tourism and leisure sector.

The sector witnessed rapid growth in the past year, with the total number of tourists visiting the Kingdom increasing by 12.8% in the first nine months of 2017. The Kingdom is also witnessing further enhancement to its tourism infrastructure to support this growth, which plays a significant role in Bahrain’s economic diversification efforts.

“The total number of tourists visiting Bahrain has reached 8.7 million during the first nine months of this year, a significant number considering our resident population of only 1.5 million people.” said Dr. Simon Galpin, Managing Director of Bahrain EDB.

“The tourism sector is one of the key investment sectors we recognise as having a strong competitive advantage for Bahrain. It contributes 6.3% to the country’s GDP, and is set to grow significantly, as the number of visitors and leisure activities increase. Bahrain continues to reaffirm its position as a tourism destination of choice with a number of new hotels, retail and leisure developments currently underway.”

The tourism investment projects are part of Bahrain’s large-scale infrastructure development across a wide range of sectors and are valued at over US $32 billion. This public-private sector investment consists of $10 billion of government funding, US $7.5 billion under the GCC Development Fund, and $15 billion worth of investment in the private sector.

As part of these developments, Bahrain International Airport is undergoing a US $1.1 billion modernisation programme, set to increase passenger capacity from nine to 14 million per year by 2020. This will go hand in hand with the new five and four-star hotels and resorts in the tourism development pipeline that will cater to current and future demand.

Other infrastructure investment projects include the development of a number of shopping malls such as Dilmunia Mall and the Marassi Galleria shopping complex, to join the recently-opened US $159 million Avenues Mall at Bahrain Bay.

Furthermore, Bahrain’s tourism strategy also extends to medical-tourism projects through King Abdullah Medical City, and mixed-use real estate projects such as Bahrain Bay, Bahrain Marina, Diyar Al Muharraq, Water Garden City, Dilmunia, and Marassi Al Bahrain where Emaar Hospitality brands such as The Address Hotel and Vida are under construction.