It could have been worse--Bahrain economy sluggish as unrest still weighs

It could have been worse–Bahrain economy sluggish as unrest still weighs

Real GDP grows 1.0 percent quarter on quarter after a 1.4 percent growth in Q1; Growth slows to 0.8 percent year-on-year--the lowest since at least 2008.

September 4, 2011 1:50 by Reuters

Bahrain’s economy grew by 1 percent quarter-on-quarter in April-June after shrinking in previous three months, but annual growth decelerated to its slowest pace since 2008 as the impact of unrest continued to stifle activity, data showed on Sunday.

The small non-OPEC oil exporter saw its real gross domestic product falling by 1.4 percent in the first three months of 2011 compared with the previous quarter, its first quarterly contraction since the global financial crisis in late 2008.

On an annual basis, GDP growth in the Arab island kingdom — the smallest economy in the Gulf at some $14 billion — decelerated to 0.8 percent in the second quarter from 1.8 percent in January-March 2011, the sixth slowdown in a row, the data from the Central Informatics Organisation showed.

“The quarter-on-quarter rebound seems reasonable. In terms of year-on-year it could have been worse but it still shows that 2011 is going to be a pretty tough year for the economy,” said Paul Gamble, head of research at Jadwa Investment in Riyadh.

“The issue is still the legacy of the unresolved political tensions that we had earlier in the year have made the private sector very cautious.” he said.

Quarterly annual growth rates for Bahrain’s GDP before 2008 are not available.

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. At the time, NCB Capital estimated economic losses at $1 billion, which made up 17 percent of the first quarter GDP.

Analysts polled by Reuters in June slashed their 2011 growth forecasts to 2.7 percent from 3.4 percent expected in March .

“What seems to happen obviously is further slowdown,” said Giyas Gokkent, head of research at National Bank of Abu Dhabi. “We will have to see the third quarter for hopefully a bounce because of establishment of some stability.”

In July, Central Bank Governor Rasheed al-Maraj expected the economy to expand by 3 percent this year, less than 4.5 percent seen by the finance ministry in March.

SECTOR GROWTH AT SNAIL’S PACE

Bahrain’s financial sector, which accounts for around a quarter of the GDP, has only just been slowly picking up from the global financial crisis and a regional property crash.

It grew 1.7 percent year-on-year in real terms in April-June, up from a 1.3 percent rise in the previous quarter.

Hotels, the most heavily hit by the uprising against the Sunni-led government, booked a 29.3 percent drop in the second quarter after a 30.3 percent output slump in January-March.

The real estate sector, which has yet to return to levels seen before the global crisis, was down 5.0 percent in the second quarter, the data showed.

Transport and communication and government services remained the main GDP drivers, analysts said, growing at an 8.6 percent and 4.9 percent annual clip, respectively.

Output of the hydrocarbon sector, which accounts for around one third of the economy, was up 1.9 percent in real terms compared with the same period a year ago. It jumped 43.5 percent in nominal terms as crude prices soared to $115 per barrel in May , due in part ot the unrest across the Arab world.

Bahrain, which pegs its dinar to the US dollar, does not release quarterly GDP data by expenditure.

The country’s nominal GDP increased by 19.8 percent year-on-year to 2.4 billion dinars ($6.3 billion) in the second quarter, the data also showed.

($1=0.377 Bahraini Dinars) (By Martin Dokoupil; Additional reporting by Martina Fuchs; Editing by Reed Stevenson)