Nov. 28, 2010 -
PRLog -- As we move towards the end of the year, the global economic scenario we had envisaged for 2010 - a shaky and largely jobless recovery slowing in the second half, alongside continued deflationary pressures - is playing out. This suggests sluggish demand going forward, and we forecast a slowdown in growth for all the major economies except the eurozone (which is coming from a much lower base). That said, oil prices have broadly held up, and Bahrain is better placed than many highly indebted economies. It also has a very solid external picture. The main risks come from the unearthing of further problems in the banking sector and/or an escalation of political tensions. We remain concerned about the stability and health of the Bahraini services economy and private sector in general. Latest figures suggest that there was a substantial rebound in overall growth in Q110, but we see risks for the remainder of the year. Although fiscal stimulus plans remain in place, they remain under threat from lower oil prices, while further turmoil in the financial sector is not out of the question. We could well see defaults from some of the over-leveraged investment companies, hitting banks' asset sheets and investor confidence more generally. Although the official numbers may come in higher than our projections, we believe that our low forecasts are a more accurate reflection of the state of the economy. Bahrain's parliamentary polls are scheduled for October 23 2010. In the wake of the recent security crackdown, the government is likely to regain some of the seats it lost to the opposition (Shi'a Islamist)
al-Wefaq society in the last elections (in 2006). However, dissatisfaction will be stronger than ever, particularly among the Shi'a Muslim majority, and further protests and unrest are highly probable. Further coup plots such as the one apparently foiled by the government in August are also more than possible. Bahrain is perhaps the single most vulnerable Gulf Co-operation Council (GCC ) state to political risk, with a large Shi'a majority and very limited financial resources. That said, a stronger pro-government majority in parliament may be well received by investors, in spite of the longer-term threats it creates. Among other reasons for concern, we see the bank lending growth rate as a sign that consumers have not gone back to their old ways: Bahrain's banks have seen the lowest loan growth in the Gulf region, with a y-o-y increase of 3.9% (against inflation of 2.4%) in May, compared with 27.0% y-o-y in Qatar. This compared with around 45% at its peak. True, personal wealth may have increased due to the apparent rise in employment, but given the extent to which credit fuelled spending during the boom years - even now, retail banks' client loans per capita amount to US $67,764 (although this includes business loans) - it is hard to imagine the stagnation not having an effect. In addition, there are risks going forward: tax rises are more than possible after the elections, given the fiscal position.
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