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Bahrain's economy is forecast to grow positively in 2010 after a sluggish 2009, with Opec Basket price projected to bounce to an average of $83 per barrel in the year.
A higher oil price will improve growth, finances and balance-of-payments positions of the kingdom in comparison with 2009.
However, thereafter, the economy would remain sluggish until 2014, when only a large increase in output from the Abu Saafa oilfield will cause a spike in real growth, says the Bahrain Business Forecast Report Q1 2010 brought out by companiesandmarkets.com.
The private sector has been damaged by the financial crisis, and growth will remain below par before 2014, averaging 1.8 per cent annually between 2010 and 2013.
The business environment remains a key strength, and has not suffered overly from the economic slowdown. Investors have been attracted by Bahrain's fiscal regime as there are no corporate taxes. But there are plans to introduce value-added tax (VAT ) throughout the Gulf Co-operation Council (GCC) region by 2012.
A recent survey conducted by HSBC found that Bahrain was the most welcoming country in the world to expatriates, ahead of Canada, Australia, Thailand and Malaysia (the survey ranked countries by 23 factors, including food, entertainment, healthcare, commuting and education).
Meanwhile, the Economist Intelligence Unit (EIU) expects the Middle East and North African economies, including oil exporters such as Saudi Arabia, the UAE, Libya and Algeria, and non-oil exporters such as Tunisia, Jordan and Egypt, to grow 4.7 per cent in 2010.
The bulk of this growth is set to be among hydrocarbon exporters in the region. Notable among these is Qatar, where vast new liquefied natural gas production facilities are due to come online this year, expanding production capacity by 60 per cent.
Libya is also a standout: The EIU says it is now 'bouncing back after the ravages of the sanctions era' - a 20-year period of UN- and US-imposed sanctions following the 1986 bombing of Pan Am flight 103 over Lockerbie in Scotland.
Iraq is also set to benefit from surging oil exports, following deals with Western oil majors to exploit the country's vast oil fields.
A jump in oil revenues during 2010 will also likely pave the way for regional oil exporters to step up efforts to diversify away from oil by investing in manufacturing, financial services and tourism. While any growth in the Middle East's private sector is likely to trail growth in oil in the coming year, many of the Middle East regional oil revenues are recycled into neighbouring countries through worker remittances and investment.
The region's construction and real estate sectors may be among the first to benefit from positive signals in the wider economy during the coming year. At the end of 2008, for example, an estimated $2 trillion of projects were under way among member states of the GCC.
Of the one-quarter that have been put on hold or cancelled, projects totalling $350 billion are in the UAE alone. As the economic climate improves and credit conditions ease, some of these projects, especially in Qatar and Abu Dhabi, may be revived.
The IMF too raised its forecast for economic growth in the Middle East this year to 4.5 per cent from its earlier 4.2 per cent.
However, it has downgraded its forecast for the UAE's economic growth to near zero, as Dubai World's debt restructuring and the emirate's property sector continue to drag on the national economy.
The IMF says the UAE economy contracted by 0.7 per cent last year, largely due to declining oil production.
But the IMF adds that while Dubai's economy would continue to contract, Abu Dhabi was expected to show growth this year.
The IMF had expected the Emirates' economy to grow by 2.4 per cent this year, having adjusted a forecast of three per cent made before Dubai World's announcement in November that it was seeking a debt standstill.
"In 2010, overall GDP growth will be about flat," says Dr Masood Ahmed, the IMF director for the Middle East and central Asia. "Within that, we expect some continued contraction in Dubai and positive growth in Abu Dhabi. In 2010, we believe that the restructuring in the real estate side of Dubai will continue to be a drag on growth." The IMF expects UAE growth of between zero and one per cent this year, he says.
Dr Ahmed says after meetings with government officials that the IMF was 'very encouraged' by the way the restructuring of Dubai World had begun, but the situation would affect the economy.
It said in its update to its World Economic Outlook that the region's economies might expand 4.8 per cent next year.
The IMF kept its baseline oil price forecast for this year unchanged at $76 a barrel. It raised its projections for next year by $3 to $82 a barrel.
