Bahrains economy contracted 5.8 percent in 2020

Bahrain’s economy contracted -5.8% y/y in 2020, according to preliminary data.  As expected, the hardest hit sectors were hotels & restaurants (-44% y/y) and transport & communications (-32% y/y).  Manufacturing, social & personal services, trade and real estate & business services sectors also contracted last year due to the coronavirus pandemic. However, utilities output grew 29% y/y as significant investment in infrastructure has led to increased production and capacity in the sector, and financial services GDP grew 1.0%.  Mining & quarrying (which is largely oil & gas) grew 0.1% y/y. 

Bahrain has accelerated its Covid-19 vaccine rollout and almost 40% of the population have received at least one dose of the vaccine as of 26 April, according to Our World in Data. While Bahrain’s daily new case numbers are low in absolute terms, with a 7-day average of just over 1000 cases, relative to the size of Bahrain’s small population, they are high at over 600 daily new cases per million people (source: Our World in Data, 27 April).  Google mobility data shows that visits to retail & recreation centres are still 20% below pre-Covid levels.  Nevertheless, we expect Bahrain’s economy to recover from last year’s sharp recession, with a forecast of 3.3% growth in 2021 off the low 2020 base as the global economy gains momentum and travel and tourism picks up in H2. 

Bahrain's vaccine drive has accelerated

Source: Our World In Data

We estimate Bahrain’s budget deficit will narrow to under BHD 1bn this year, lower than the official budget estimate of BHD 1.2bn. This is largely due to our higher oil price forecast of USD 67.5/b against the USD 50/b assumed in the budget. The deficit should shrink to -6.6% of GDP this year from an estimated -12.2% in 2020.  With USD 2bn in international bonds issued at the start of the year, the deficit should be easily financed.  Indeed, Bahrain’s 5Y CDS spread has narrowed by almost 300bps since last May, although it remains slightly above pre-pandemic levels. 

However, at the conclusion of its recent Article IV consultation last month, the IMF stressed that additional fiscal consolidation measures will be needed to reduce dependency on oil revenues and lower public sector debt, which the IMF estimates will rise to 155% of GDP by 2026 in its baseline scenario, from 133% in 2020.