Bahrain has recorded generally strong economic growth over the past decade, despite the twin blows of the ---- global downturn and the political crisis that began in ---- (and has persisted ever since). Until now, high oil prices fed into rising government spending and greater private sector activity, while Bahrain could boast of being the most diversified economy in the GCC, with an established financial sector and several indus- trial ventures, notably Aluminium Bahrain. ...However, we do not see growth returning to previous levels over the coming years. A growing number of regional rivals and the country s troubled politics will continue to erode Bahrain s competitive advantage in the financial and business services in- dustry, with outstanding investments in Bahraini mutual funds (a reflection of investor confidence in the financial services sector) having steadily fallen since the start of the ---- political crisis. At the same time, lower oil prices will weigh on consumption and investment growth, although the fiscal support provided by Bahrain s GCC neighbours will help to support liquidity and macroeconomic stability. ...Notwithstanding the impact of lower oil prices and weaker public spending growth on consumer and business confidence, we generally expect private consumption growth to remain strong over the remainder of the current decade, with a host of structural factors supporting the outlook for consumer purchases. The labour market continues to expand on the back of sustained increases in the expatriate and local employed workforce, while the government is un- dertaking steps to boost tourist inflows, with national airline -- Business Monitor International Ltd www.bmiresearch.com
...External financing from the rest of the GCC will help to shield the Bahraini non-oil sector from the ongoing retrenchment in public spending. Despite the negative impact of subsidy cuts on internal demand, we forecast Bahrain to grow at a relatively robust rate of -.- this year and -.- in ----. Bahrain s reputation as a stable and welcoming location to do business in the Gulf has suffered as a result of the volatile political climate. At the moment, it remains to be seen if Manama will be able to compete with Doha and Dubai in attracting investment into the all-important hospitality and financial services industry. The economy s medium-term outlook remains contingent upon a lasting solution being found to the current political crisis. ...The Central Bank of Bahrain (CBB) will continue to follow a pro- cyclical monetary policy over ----, raising interest rates in line with the US Federal Reserve s moves. Although the government s subsidy cuts will trigger inflation, continued strength in the US dollar, subdued commodities prices and the CBB s rate hikes will help to offset inflationary pressures.
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