According to Kamco, inflation in Bahrain as measured by the consumer price inflation is seen rising sharply to 2.80pc in 2020 from 2pc this year.
The country started a phased implementation of value-added tax (VAT) this year and the final phase will take effect from January 1, 2020, when all businesses with annual supply value exceeding BD37,500 would be under the tax regime.
The report found that GDP improved by 0.8 per cent year-on-year (YoY) in Q2-2019 to BD3.65bn from BD3.59bn in Q2-2018.
The transport and communications sector was the key driver for the increase, as the sector grew by 2.6pc YoY in real terms.
The manufacturing sector which accounts for 14pc of Bahrain’s total GDP however declined by 0.5pc YoY.
Construction and real estate sectors, that combine for 11.2pc of total GDP witnessed dissimilar trends as construction GDP grew by 4pc while real estate GDP declined by 7.9pc YoY in Q2-2019.
In the services sector, financial services grew by 4pc YoY in the second quarter of 2019.
However, on a quarter-on-quarter (QoQ) basis, real GDP grew by 3.4pc in Q2-2019 from Q1-2019, while nominal GDP gained by 4pc over the same period.
In nominal terms, manufacturing was the largest sector with a contribution of 17.8pc to GDP.
Manufacturing was the largest sector with a contribution of 17.8pc to GDP
Financial services and the mining sector followed with contributions of 16pc and 14.6pc to nominal GDP.
Construction and real estate sectors contributed to a combined 11.8pc of nominal GDP.
Money supply (M2) at the end of October 2019 increased by 0.9pc from Q2-2019 to BD11.94bn after declining by 0.6pc in Q3-2019.
Time and savings deposits grew by 3.2pc from Q2-2019, however M1 receded by 4.4pc over the same period.
Credit disbursed to the non-government sector declined 0.3pc QoQ and improved 5.7pc YoY to BD9.51bn in Q2-2019.
Personal credit disbursed increased by 0.9pc QoQ, while construction credit receded by 0.3pc.
Manufacturing credit on the other hand increased by 3.1pc QoQ in Q2-2019.
On YoY basis, credit disbursed to the personal sector increased by 7pc as of Q2-2019, while construction and manufacturing sectors witnessed credit growth of 3pc and 23.5pc respectively over the same period.
Further, inflation numbers at the end of October 2019 suggested a move up of 0.7pc as against June 2019. Looking at the GCC region as a whole, fiscal expansion is forecast to continue in 2020, although spending is expected to decline marginally as compared with 2019 to $603.7bn, based on the analysis of IMF’s general government fiscal balance estimates.
For the region, budget deficit is forecast to increase from $39.7bn in 2019 (-2.4pc of GDP) to $54.7bn (-3.3pc of GDP) in 2020, as per IMF data.
The higher deficit in 2020 despite sequentially lower budget expenditure in the region, is mainly ascribed to lower revenues of $549bn in 2020, from lower oil output following the deeper cuts and probability of overcompliance from Saudi Arabia.
Nevertheless, GCC governments continue to focus on expenditure efficiencies and improving their management of fiscal risks.
Kamco Research believes that GCC countries are comfortably placed in terms of funding their fiscal spending and deficits, via a combination of debt issuances – both conventional and sukuks, options of privatisation, listing and partial sale of state-owned assets and their ample foreign exchange reserves.
Further interest rates are expected to remain accommodative in the GCC, as GCC currencies are either pegged or loosely pegged to the US dollar, which should leave the bond market route open for future debt issues, if necessary.
Having said that, oil market stability will remain necessary for securing more progress for the region’s diversification efforts and further non-oil economic growth.
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