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Bahrain's economy 'to grow at 6.5 per cent' |
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Wednesday, 09 January 2008 |
Gulf Daily News - MANAMA - Bahrain's economy is expected to expand further this year. After growing by 6.2 per cent last year it looks on track to show growth of 6.5pc in the current year, according to a leading investment bank.
All six GCC countries are expected to grow faster this year, according to a report by investment bankers EFG Hermes, which predicts 9pc growth for the UAE and 5pc for Qatar.
Higher oil and gas production is at the root of the forecast, according to EFC Hermes analyst, Monica Malik, who says the GCC economies will be among the strongest in the world.
This forecast comes as the United Nations have forecast global growth will fall to 3.4pc, but warned that there was a possibility of the world economy coming to a near standstill.
"The outlook for the GCC remains positive for this year, with higher oil prices and production strengthening a number of economic indicators," Ms Malik said.
"The GCC economies will continue to be the strongest globally. Opec countries increased oil production levels in November last year and are likely to do so again this year despite a global economic slowdown.
"The consensus is forecasting that the oil price will increase to an average $77.2 per barrel this year from $72.7 last year."
Although oil sector growth will strengthen this year, it will continue to be outstripped by non-hydrocarbon sector growth, which has been buoyed by strong domestic demand.
The main driver for the non-oil sector will be the investment drive, with all the region's countries focusing on upgrading infrastructure and broadening the base of their economies to some degree.
However, the report points out that of approximately $1.6 trillion in projects planned for the region, less than 20 per cent are now under construction. The longer the oil price remains high, the more new projects will be added.
It is important that GCC countries focus on projects that add value, either by generating export or domestic revenue or by providing employment opportunities, it said.
Another significant challenge will be matching policy to the needs of the economy, which currently cannot be done on the monetary side owing to the GCC currency pegs to the US dollar, except Kuwait the report argues and it says there is a better than 60pc change of a move away from the peg by either the UAE and Qatar or the entire GCC.
"Linking GCC currencies to a currency basket would have the advantage of providing greater monetary policy flexibility, although interest rates would be unlikely to move markedly from dollar interest rates as it would continue to dominate any basket," it adds.
"A mere revaluation against the dollar would result in periodic strong inflows as speculators shifted funds into GCC currencies in the belief the currency might appreciate."
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