Throughout the last quarter, Bahrain has continued a fragile recovery towards political stability after the period of anti-government hostilities witnessed in the first half of the year.
Underlying political tensions remain, however, and flared up again during recent elections to fill parliamentary seats vacated following the unrest.
According to Bahrain Economic Development Board (EDB), Bahrain’s output expanded by 4.5% in 2010, with almost all sectors of the economy showing signs of recovery after the Global Financial Crisis of 2008.
Against the current backdrop of instability, the Central Bank of Bahrain (CBB) has revised its projections for GDP growth in 2011 to 3%, which is two percentage points lower than previously forecast.
The IMF has projected a GDP growth of 1.5% in 2011 but is more optimistic for next year with a projected growth of 3.6% in 2012.
Meanwhile, there is a steady progress of initiatives to diversify the economy with particular focus on generating growth in areas such as tourism, manufacturing and finance.
The tourism industry continues to be a main focus for growth yet this sector has been hit especially hard by the unrest.
Hotels and restaurants suffered significantly during the first half of this year, mostly due to a decline in visitor numbers, and a downturn in both business and consumer confidence.
Indications that the Grand Prix will be reinstated for next year will come as welcome news to hoteliers: Bernie Ecclestone has provisionally agreed to reschedule the 2012 Bahrain Grand Prix to November from its previous March slot.
Bahrain is relying heavily on the manufacturing sector for future growth.
This sector is expected to recover more strongly than others. GDP growth over the coming four years is to be supported by planned expansion in Bahrain’s leading manufacturing industries.
Industrial sectors that are already well established include metals, construction materials, petrochemicals and food processing.
With several incentives available, the business environment is extremely competitive; offering duty-free imports and exports (GCC), no corporate tax and 100% foreign ownership.
In addition, Bahrain’s location next to Saudi Arabia with easy access to Europe and Asia will strengthen its position as a favoured investment destination.
Generally, the economic environment in the Kingdom remains relatively downbeat.
How it recovers, will depend heavily on political stability being maintained.
The Bahrain economy is, however, unlikely to fall in to recession, particularly in light of the $10 billion of external financial aid pledged by other GCC members coupled with higher oil prices and an increase in government spending.