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Mon 22 Aug 2011 06:08 PM

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Bahrain economy seen shrinking 1.6% in 2011

Business Monitor International says growth will 'slow markedly' on back on social unrest issues

Bahrain economy seen shrinking 1.6% in 2011
Bahrain protesters, Bahrain flag

Bahrain is set to see its economy contract by 1.6 percent this year on the back of the social unrest that hit the country earlier this year, Business Monitor International has said in a new report.

Analysts said growth in the Gulf kingdom would "slow markedly" with investment, consumption and trade all expected to trend lower.

"Although the Bahraini government will likely aggressively ramp up spending in a bid to shore up domestic political support, we continue to project the country posting a budget surplus in 2011 and 2012 to

the tune of 2 percent and 0.4 percent respectively," BMI said.

"This will be due primarily to the impact of higher oil prices and external aid from other Gulf Cooperation Council states," it added.

Earlier this month, the head of the country's chamber of commerce said Bahrain's economy had lost up to $2bn due to the policie unrest.

BMI said it had revised down its average 2011 consumer price inflation forecast for Bahrain to -0.1 percent year-on-year from 1.8 percent previously.

"This comes on the heels of a massive drop lower in housing prices, which contracted over 14 percent in March and April as a result of the government deciding to reduce housing instalments by 25 percent," the BMI report said.

"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 begin relocating to Dubai or Doha, Bahrain’s growth outlook would suffer accordingly," BMI added.

Last week it was reported that Bahrain's economy shrank by 1.4 percent quarter-on-quarter in the first three months of 2011 as unrest hit businesses in the tourism sector.

On an annual basis, GDP growth of the Arab island kingdom, at some $14 billion the smallest economy in the Gulf, slowed to 1.8 percent in the first quarter from a revised 3.7 percent in October-December 2010, the data  from the Central Informatics Organisation showed.

The island kingdom, a financial hub where nearly $9 billion in mutual funds is parked, had been rocked in February and March by its worst public unrest since the 1990s.

Around 30 people died in a month of unrest which brought in Saudi troops, closed banks and shops and triggered capital flight.

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