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Bahrain’s Economic Outlook- Fall 2016


Growth continues to slow and the fiscal deficit remains wide. The BOP current account has moved into deficit and international reserves have declined. Despite the significant fiscal consolidation efforts taken by the authorities, Bahrain is the most vulnerable GCC country in the face of low oil and bauxite prices due to its limited savings and high debt levels, leaving it exposed to financing risks.

Outlook

Economic growth is expected to decline in the forecast period. Real GDP growth projections have been revised downwards to 2.0 and 1.8% in 2016 and 2017 respectively, as continuing low oil prices depress private and government consumption. Some infrastructure investments are also likely to be put on hold. In addition, the high oil production in the first quarter of 2016 is not likely to continue after the withdrawal of the international oil companies from the Awali oilfield in May.
Average inflation is expected to increase to 3.4% in 2016 reflecting subsidy reform and will remain above 3% in the medium term. The current account deficit will widen to 5.1% of GDP in 2016 and gradually fade away as oil prices recover and global demand for aluminum rises in following years. International reserves are expected to follow a declining trend (to 2.4 months of imports in 2016).
 
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