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Project Acceleration Set to Galvanise Bahrain’s Economy in 2018

Economic Development

The implementation of a series of major infrastructure projects has been a key driver of growth for Bahrain’s economy in recent years, and there are signs that an acceleration in construction projects is likely to stimulate further growth through the rest of 2018.

After a relatively quiet 2017, the construction sector experienced an impressive rate of 6.7% year-on-year growth in the first quarter of 2018.

As we explain in the Q2 2018 Bahrain Economic Quarterly Report, this is significant because construction has historically been a key driver for other non-oil sectors. Renewed momentum from the first quarter is a strong indicator that sectors such as manufacturing, trade, real estate and financial services are likely to benefit from this growth over the course of the year.

The progress we have seen in construction is in part the result of a rapid increase in the pipeline of projects tendered as part of the GCC Development Fund, reaching a cumulative total of just over $5.1bn, compared to less than $4.2bn by the end of 2017.

And it isn’t just the GCC Development Fund driving economic expansion – major private and semi-government projects are making headway as well. For example, Samsung was awarded a $4.2bn contract for the Bapco Modernization Program, the largest investment in the Kingdom’s history. Progress is also being made in developing the Khaleej al Bahrain oil and gas field, which is Bahrain’s largest oil find since 1932.

This promising momentum underpins optimism regarding economic development for the rest of the year, despite a relatively slow start to 2018.

Bahrain’s economy contracted in Q1 2018, mainly due to a one-off maintenance-related reduction in oil production, leading to a 15% reduction in oil sector output. Non-oil sector activity in the first quarter remained positive but slowed to levels near the GCC average as a result of the base effect after a period of rapid acceleration, as well as the lagging impact of anticipated unevenness in infrastructure project implementation during the second half of 2017.

However, the momentum generated by the acceleration of project implementation is likely to play a key role in stimulating economic activity through the rest of the year. This momentum is complemented by recent data from surveys indicating stronger business confidence, increases in lending by retail banks, and a more favourable regional growth backdrop – all of which are likely to reinforce further progress across the non-oil sector.

Bahrain’s economy has progressed impressively in recent years: in 2017 it was the fastest growing economy in the GCC, and according to the latest forecasts by the IMF, published in April, it is set to be the fastest growing GCC economy in 2018 as well. As the implementation of a number of major projects accelerates, we anticipate another year of strong growth and increased opportunities for investors looking to access the GCC market.

Dr. Jarmo Kotilaine

Chief Economist, Bahrain Economic Development Board