Bahrain's non-energy sector growth prospects stay positive

Zawya

5 hours ago

Bahrain's economy faces a nuanced outlook for 2025, navigating a weaker global growth forecast and new US tariffs, even as regional oil output increases offer some tailwind, according to the Institute of Chartered Accountants in England and Wales (ICAEW) Economic Insight report for Q2, prepared by Oxford Economics.
Released yesterday, the report notes that the International Monetary Fund (IMF) has cut its 2025 world GDP growth forecast to 2.4 per cent from 2.8pc last year, marking the lowest expansion since 2020. This comes as most of the world, including the Middle East, continues to face tariffs of around 10pc.
Despite these headwinds, the Middle East is expected to see stronger growth this year than in 2024, largely driven by Opec+ countries accelerating the rollback of oil production cuts. Regional GDP is now projected to grow by 3.5pc in 2025, up from 1.5pc in 2024.
For the GCC, which includes the kingdom, GDP growth is forecast at 4.4pc this year. This upward revision is primarily due to Opec+ members, including Saudi Arabia and the UAE, raising oil supply faster than anticipated. Saudi Arabia's average oil production is now projected at 9.7 million barrels per day (bpd) for the year, boosting its oil sector growth forecast to 5.2pc. The UAE's oil sector is expected to grow by 6.1pc.
However, GCC countries, including Bahrain and Oman, now face a universal 10pc US tariff on their goods, superseding existing free trade agreements. While the direct impact is expected to be muted given that GCC exports to the US are only 3pc of total exports and energy is exempt, trade uncertainty could dampen near-term external demand and investment.
The increased Opec+ supply and global growth concerns pushed Brent crude oil prices to their lowest since 2021 in early April. Although prices have stabilised near $65 per barrel, continued tepid demand and building supply are expected to limit gains, with an average price of $67.3 per barrel forecast for 2025.
The kingdom's non-energy sector growth prospects remain positive, though the projected pace of expansion has been slightly lowered to 4.1pc this year for the GCC region. High-frequency data indicate resilient growth momentum, particularly in Saudi Arabia and the UAE, driven by robust hiring and significant project spending.
Tourism is also a key growth engine for the region. Dubai saw a 3pc year-on-year increase in international visitors in Q1, with hotel occupancy at 82pc. The UAE anticipates a 10.3pc rise in tourist arrivals this year, benefiting its real estate, hospitality, and infrastructure sectors.
The lower oil price environment has elevated fiscal risks for the region. For countries like Bahrain, Oman, Qatar, and Kuwait, where commodity exports account for over 70pc of government revenue, downward pressure on oil prices will strain budgets, potentially leading to wider deficits or increased borrowing. While Qatar and the UAE are still projected to run surpluses, Saudi Arabia is now forecast to have a budget deficit of 3.4pc of GDP in 2025, up from 2.8pc last year.
Despite low inflation across the region, with Bahrain and Qatar experiencing negative annual inflation, domestic interest rates are expected to remain high due to their currencies' peg to the US dollar. The US Federal Reserve is anticipated to begin aggressive rate cuts in December, which should support domestic consumption and investment next year.
The kingdom, along with other GCC nations, continues to be viewed as an attractive investment destination, with growing foreign participation in both bond and equity markets. The region saw a record 53 IPO deals last year, raising over $13 billion, as authorities aim to deepen capital markets and further diversify their economies.
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