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Bahrain Business Forecast Report Q4 2011 Published on August 2011
Report Summary Core Views Growth in Bahrain is expected to slow markedly in 2011 as a result of the country's ongoing political crisis. Investment and consumption will be particularly hard hit, which should see real GDP growth come in at only 0.5%. While we expect growth to rebound in 2012, we stress that the economy's medium-term outlook remains contingent upon a lasting solution being found to the current political crisis. Unfortunately, we maintain our relatively guarded outlook on the prospects that the government and opposition can come to some form of agreement in the near term. As a result, political risks will remain elevated for the foreseeable future. Major Forecast Revisions We have revised down our average 2011 consumer price inflation forecast to -1.5% year-on-year (y-o-y) from -1.0%. This comes on the heels of a massive drop lower in housing prices, which continues to contract by over 14% y-o-y as a result of the government deciding to reduce housing instalments by 25%. In 2012, we expect consumer price inflation to head higher as a result of loose fiscal policy and accommodative monetary policy out of the US Federal Reserve. On the back of recently released full-year 2010 budget data, we have revised our short and medium-term fiscal forecasts. We now expect the budget to remain in deficit in 2011 and 2012, as an increase in oil revenues will be unable to compensate for the aggressive ramp up in spending expected over the coming years.
Key Risks To Outlook Should the government fail to address some of the protestors' main grievances, Bahrain's political crisis could rumble on for longer than expected, with risks of the opposition becoming radicalised increasing by the day. It remains unclear what impact 2011's political crisis will have on Bahrain's long-term economic outlook. Should investors begin to reassess the costs of doing business in the country and relocate to Dubai or Doha, Bahrain's growth outlook would suffer accordingly.
Table of Content Executive Summary......... 5 Core Views .5 Major Forecast Revisions .......5
Key Risks To Outlook ...5 Chapter 1: Political Outlook....... 7 SWOT Analysis.... 7 BMI Political Risk Ratings...... 8 Domestic Politics 8
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>> Get this Report Now by email! Bahrain's Political Deadlock To Persist.....8 Bahrain's political deadlock will persist for the foreseeable future, especially since the main opposition Al-Wefaq group has withdrawn from government-sponsored national dialogue aimed at reconciliation. With the causes of political unrest earlier this year unresolved, tensions between the ruling Sunni minority and the Shi'a majority will linger, potentially bubbling to the surface at a later date. Long-Term Political Outlook.. 9 Sun, Sea, And Sectarianism: Prospects For Future Stability Assessed...9 Bahrain's political future is complicated by growing tensions between the Sunni elite and the Shi'a majority, labour and population imbalances, the need to stay on side with both Iran and Saudi Arabia, and economic vulnerability. We believe that the most likely longterm scenario is for democratisation to be brought about by political and economic necessity, although there is no guarantee that this would be peaceful. Chapter 2: Economic Outlook.. 13 SWOT Analysis.. 13 BMI Economic Risk Ratings. 13 Economic Activity....... 14 Growth Outlook Remains Weakest In GCC .......14 Our outlook on Bahrain's economy remains weak, and we have pencilled in a real GDP growth rate of only 0.5% in 2011. Consumption and investment patterns are projected to experience the most notable declines, while higher oil receipts should help support the economy's net export position regardless of an expected decline in service credits. The economy's medium-term growth potential remains contingent upon a lasting solution to the political crisis being found, which is a scenario we believe remains unlikely at this juncture. 14 Table: BAHRAIN ' ECONOMIC ACTIVITY.......14 Table: BAHRAIN ' FISCAL POLICY.......16 Fiscal Policy ..... 17 Budget Headed Deeper Into Deficit17 Bahrain's budget will fall further into deficit throughout 2012, as the government's large-scale stimulus programme results in an aggressive ramp up in current spending. We project the fiscal deficit expanding to 5.4% of GDP in 2012, before falling to 1.5% by the end of our five-year forecast period. These new spending measures will become increasingly problematic over the coming years, particularly given the weak prospects for fiscal consolidation and the elevated risk of a moderation in oil prices at a later stage. Banking Sector.. 18 Asset Quality To Deteriorate.18 Monetary Policy 20 Upwards Price Pressures To Build In 2012.......20 Bahrain is expected to remain in deflation through the remainder of 2011, as government-mandated cuts to outstanding housing loans drag the headline CPI print lower. We forecast consumer price inflation coming in at -1.5% by end-2011. Upwards price pressures will begin to build in 2012 concomitant with loose fiscal policy and accommodative monetary policy at the US Federal Reserve, and we project headline CPI rising to 4.0% by end-year accordingly. Table: BAHRAIN ' MONETARY POLICY20 Regional Outlook ........ 22 Table: MENA : Evolution of 2011 Real GDP Growth Forecasts . 22 MENA : Political and Economic Measures Announced Since the Start of 2011 ......... 23 Chapter 3: 10-Year Forecast.... 27 The Bahraini Economy To 2020 ..... 27 Political Crisis Raises Risks.27 The longer-term outlook is broadly positive beyond 2011, assuming oil prices do not collapse and political stability is eventually restored. That said, the onset of violent unrest at the start of 2011 has raised a host of questions surrounding Bahrain's long-term outlook, with
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>> Get this Report Now by email! concerns growing that the country's financial services and tourism sectors will suffer heavily going forward 27 Chapter 4: Business Environment..... 29 SWOT Analysis.. 29 BMI Business Environment Risk Ratings 29 Business Environment Outlook ..... 30 Institutions ........ 30 Table: BMI Business And Operation Risk Ratings...... 30 Table: BMI Legal Framework Rating 31 Infrastructure .... 32 Table: Labour Force Quality.... 32 Market Orientation ...... 33 Table: Middle East and Africa ' Annual FDI Inflows 34 Tax Regime ....... 35 Table: Trade And Investment Ratings........ 35 TABLE: TOP EXPORT DESTINATIONS , 2001-2009 35 Operational Risk ......... 36 Chapter 5: Key Sectors.. 37 Pharmaceuticals 37 Table: Generic Drug Sales Indicators 2007-2015........ 38 Table: OTC Medicine Sales Indicators 2007-2015......... 38 Table: Medical Devices Sales Indicators 2007-2015... 39 Table: Prescription Drug Sales Indicators 2007-2015........ 40 Table: Patented Drug Market Indicators 2007-2015.. 40 Telecommunications... 41 Table: Telecoms Sector ' Internet ' Historical Data & Forecasts 2008-2015. 42 Table: Blended ARPU .. 42 Table: Telecoms Sector ' Fixed Line ' Historical Data & Forecasts 2008-2015......... 43 Table: Telecoms Sector ' Mobile ' Historical Data & Forecasts 2008-2015..... 44 Chapter 6: BMI Global Assumptions. 45 Global Outlook... 45 US Forecasts Take A Hit .......45 TABLE: GLOBAL ASSUMPTIONS ........ 45 Table: EMERGING MARKETS AGGREGATE GROWTH. 46 Table: DEVELOPED STATES REAL GDP GROWTH FORECAST ....... 47 Table: REAL GDP GROWTH CONSENSUS FORECASTS ........ 47
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