MANAMA — Bahrain's real GDP growth reached 4.5% in 2014, the latest Bahrain Economic Quarterly (BEQ) issued by the Bahrain Economic Development Board (EDB) revealed. The report also highlighted that non-oil sectors rose markedly from the 3.0% rate recorded in 2013 to 4.9% in 2014. The acceleration in non-oil growth toward the end of 2014 was broad-based. However, by far the strongest pick-up in activity was observed in the construction sector which, having grown by 1.4% in Q1, accelerated to 3.6%, 12.3% and eventually 12.5% YoY in the three successive quarters. This reflects the initiation of a number of major infrastructure projects in areas such as road transportation. The hydrocarbons sector too registered unexpectedly robust growth until the closing quarter of 2014, driven by sustained levels of output from both the onshore Bahrain and the offshore Abu Sa'afah fields. Following three consecutive quarters of annual growth rates of 4.1%, 9.3%, and 4.7%, respectively, the last quarter recorded a 5.9% YoY in production in a reversal toward the norm. During 2014 as a whole, the average production from the Bahraini share of the Abu Sa'afah offshore field amounted to 153,637 b/d – in other words, at 102.4% of the field's full capacity. The onshore Bahrain field averaged a production rate of 48,780 b/d. We currently expect oil production during 2015 to be more or less comparable to last year's total. Strong growth of 12.5% year on year was reported in the construction sector following the initiation of a number of major infrastructure projects in areas such as road transportation. The hotels and restaurants sector has been a strong performer throughout 2014 having seen an overall expansion rate of 9.9% year on year. The sector benefited from a continued increase in visitor numbers to unprecedented levels. Partly in response, it has also seen significant expansion in capacity, with several new establishments opening in 2014. A number of important developments in hotels and restaurants, construction and real estate & business sectors are likely to drive the positive progress further in the near to medium term. The Government has recently taken important steps to boost regulatory standards in the real estate sector. A formal tenancy registration process is designed to better protect the rights of tenants and landlords, and new legislation has been approved for new development projects. The Government announced in February that it would oversee the completion of several stalled real estate projects, through the engagement of local and regional financial institutions, among others. Priority projects include Villamar at the Bahrain Financial Harbor, Amwaj Gateway Towers, Marina West, and Riffa Views. New projects include a 1.5 million sq m Ras Al Barr Resort reclamation project by PK Development Company. Located to the south of Durrat Al Bahrain, the mixed-use watefront development will offer housing, hotels, retail spaces, and public beachfront facilities, along with community facilities. The Diyar Al Muharraq development in the north of Bahrain signed a major agreement with the Ministry of Housing in March to provide 3,100 residential units at a cost of BHD276 million under the auspices of the Ministry's Social Housing Program. Such public-private partnership models are establishing themselves as an increasingly important way of meeting the country's growing housing needs with private sector involvement. Growth in the financial services sector reached 3.4% year on year in 2014 in a marked acceleration from the 2.3% pace recorded in 2013. The report further suggested that the retail-banking sector is in a position to accelerate lending due to high liquidity as loan-to-deposit ratios are less than 50%. Even as the pick-up in growth was above all due to the clear acceleration in the non-oil space, also the hydrocarbons sector saw stronger growth than originally expected, expanding by 3.0% during the year. Dr. Jarmo Kotilaine, Chief Economist at the EDB, said: “The report highlights the steadily growing contribution of the non-oil sector to the Kingdom's economy. The fact that 80% of Bahrain's GDP, now comes from areas other than hydrocarbons highlights the transformative impact of the reform efforts to diversify the economy in past years. We expect project spending on infrastructure, tourism, and increased private sector activity to drive non-hydrocarbon growth much further and offset to a large extent the impact of any decline in revenues from oil.” The report projects that real GDP growth will be around the 4.0% mark over the coming two years, despite the challenging macroeconomic environment. In October 2014 it was announced that $22 billion would be invested in infrastructure projects in Bahrain over the next four years, including the Bahrain International Airport modernization project and expansion of Alba's operations, already among the world's largest primary aluminum smelters as well as other sectors including housing and education. In line with that, the report projected healthy growth in the GCC economy with the non-oil sector continuing its momentum. — SG
