By Andy Sambidge
Business Monitor Int'l says country's economy to be hit hard by impact of political, social unrest
Bahrain could see an economic contraction of 1.6 percent this year as a result of the political and social unrest which has hit the country, Business Monitor International has said.
Analysts believe growth in the Gulf kingdom will "slow markedly in 2011" as a result of the ongoing crisis which could yet see Bahrain missing out on its place in this year's Formula 1 calendar.
"Investment, consumption and trade are all expected to trend lower, which should see real GDP contract 1.6 percent this year," a new BMI report predicted.
It added that although the Bahraini government is likely to "aggressively ramp up spending" in a bid to shore up domestic political support, the country was still set to post a budget surplus in 2011 and 2012 to the tune of two percent and 0.4 percent respectively.
"This will be due primarily to the impact of higher oil prices and external aid from other Gulf Cooperation Council states," the BMI report said.
BMI said it has also revised down its average 2011 consumer price inflation forecast to -0.1 percent year-on-year from a previous forecast of 1.8 percent.
"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 installments by 25 percent," the report added.
Business Monitor International said its outlook on the domestic banking sector was "considerably less sanguine at this juncture".
"Heightened risk aversion will likely see banks increasingly more cautious in their lending practices, which should weigh on credit growth over the coming quarters," it said.
It added that should the government fail to address some of the protestors’ main grievances, Bahrain’s political crisis could rumble on for longer than expected.
"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," the report said.