Bahrain Economic Forecast

Annual GDP growth more than halved in the first quarter, dragged by a decline in the key oil sector. In the second quarter, the economy should have continued to expand. The performance of the oil sector—which accounts for roughly 15% of GDP—improved in Q2, likely contributing to overall growth; oil output grew 2.8% year on year in Q2, the strongest increase since Q4 2021. Moreover, natural gas production rose further in Q2, albeit only slightly. In addition, consumer prices were flat year on year in Q2, alleviating pressure on purchasing power and supporting spending. Less positively, interest rates rose further in May, which likely capped the overall improvement in spending and investment. Moving to Q3, merchandise exports fell 23.0% year on year in July, and goods imports decreased 6.0% annually.

Consumer prices fell 0.1% year on year in July (June: +0.4%) on falling prices for transport and a steeper decline in prices for housing and utilities. In H2 2023, price pressures should pick up from current levels. Still, average inflation this year will be a third of 2022 levels due to higher interest rates, slower activity and a base effect.