Bahrain Economic Quarterly – June 2014

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The global economy is continuing its gradual recovery with increasingly positive employment data from the US and looser monetary policy in the EU. While the historically high valuations at which global equity markets are trading is a source of concern, major discontinuities are generally viewed as unlikely in the near term. This should translate into a generally positive backdrop for the regional and local economy.

► Bahrain’s GDP growth is led by the non-oil sector. Reflecting regional trends, economic growth this year is likely to be almost entirely reliant on the non-oil sector. The initiation of a significant number of infrastructure projects, many of them funded by the GCC Development Fund, will drive activity through numerous linkages and positive confidence effects.

► Bahrain’s oil output looks likely to remain flat this year but several significant oil and gas sector projects are getting underway. The main oil fields are likely to continue production at capacity in line with last year levels. Important new projects in the sector include the LNG import terminal, exploratory drilling for deep gas, and the Saudi pipeline upgrade.

► The regional economy looks likely to reach trend growth fueled by the non-oil sector. The dynamics of the global oil sector, most notably continued increases in non-OPEC output, may limit the opportunities for output gains in an environment of relative price stability. However, the non-oil growth drivers appear increasingly robust across the region.

► The global economy is experiencing a degree of rebalancing. The ongoing recovery in the West is showing signs of growing consolidation, above all in the US. The relative underperformance of emerging markets is continuing, although there are some indications of a greater willingness to engage in structural reforms to boost growth.

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