Bahrain Economic Outlook
Following 2022’s strong performance, annual GDP growth should have moderated so far this year. Challenges to the performance of the oil sector mounted: Year-on-year crude production plunged over 14% in the first two months of the year. Meanwhile, private spending was likely a key driver of growth at the outset of 2023; price pressures in Q1 softened to their lowest level since Q4 2021, providing some support to consumers’ budgets. In the fiscal arena, authorities presented the 2023–2024 state budget in early April; the plan aims to drastically cut the public deficit to nearly BHD 570 million (around USD 1.5 billion), a fourth of 2021–2022’s figure. Total revenue in the period is expected to be BHD 6.6 billion. In other news, Bahrain and Qatar restored diplomatic ties in April following a years-long dispute; this bodes well for trade and tourism.
Consumer prices declined 0.1% year on year in March (February: +1.1%), largely due to a statistical effect: In January 2022, the VAT was doubled to 10%, fueling inflation. Meanwhile, on 3 May, the Central Bank hiked the one-week deposit rate by 25 basis points—mirroring the Fed—to 6.00%. In 2023, inflation will be lower than last year, thanks to a fading base effect and higher interest rates.