BEQ March 2014

Bahrain Economic Quarterly
March 2014
BAHRAIN ECONOMIC QUARTERLY | March 2014
SUMMARY
THE NON-OIL ECONOMY COMES TO THE FORE

The global economic backdrop continues to provide grounds for growing optimism in
spite of a gradual tightening of the monetary policy stance in the US. Risks of
significant discontinuities seem to have abated somewhat and growth is resuming
even in some of the hardest hit economies. The regional backdrop is generally benign,
characterized by relative continuity as compared to last year.
Bahrains non-oil growth likely to accelerate markedly. Following a year of
relatively subdued activity, the non-oil sector looks likely to regain momentum in
the coming months as a number of infrastructure projects are launched. This
should have a marked positive impact on the rest of the economy through
contractors, confidence, and increased bank credit growth.
SUMMARY
GLOBAL ECONOMY
THE GCC REGION
12
BAHRAIN
22
Bahrains oil sector is likely to see a year of relative stability. Following robust
normalization in 2013, production levels in the hydrocarbons sector are likely to
remain more or less flat this year. Abu Saafah should produce at close to full
capacity while efforts are underway to evaluate the results of new techniques
introduced in the Bahrain field.
The GCC overall looks likely to be one of the bright spots of the global economy.
Growth in the region is likely to be solidly led by the non-oil sector as both price
and output gains in the oil sector are expected to be minimal or even negative.
This is going hand in hand with fairly measured government expenditure growth.
The global backdrop is becoming more encouraging, led by the advanced
economies. In spite of continued volatility, the performance of advanced
economies is looking healthier. Even though the performance of emerging
economies is variable, the overall outlook is becoming somewhat more
encouraging. Countries with significant external deficits have struggled with the
effects of the US tightening.
Bahrain economic outlook
Real GDP growth, %
Non-hydrocarbon sectors
Hydrocarbons sector
Nominal GDP growth, %
Inflation (CPI %)
Current account (% of GDP)
Fiscal balance (% of GDP)
Oil price in USD (Arabian Medium)
2011
2013e
2014e
2015e
3.4
6.7
-8.5
4.1
2.8
7.3
-2.0
106.8
4.8
3.1
12.0
7.9
3.0
9.7
-2.6
105
3.7
4.6
0.0
5.9
3.0
9.1
-3.1
105
3.6
3.9
2.6
6.0
3.0
9.7
-3.6
105
Source: Bahrain Economic Development Board
Please refer to the disclaimer at the end of the document.
Page 2 of 29
BAHRAIN ECONOMIC QUARTERLY| March 2014
GLOBAL ECONOMY
SIGNS OF RECOVERY IN THE WEST

The global outlook has
become significantly
more positive and the
main concerns now
seem to pertain to
emerging markets.
While the global economic situation remains fragile, the recovery observed last year has
generally continued across the advanced economies. The outlook is particularly benign for the US
even allowing for significant seasonal disruptions to economic activity. But even the Euro-zone
seems to be returning to very slow growth while some EU economies outside the single currency
area have seen even faster progress. This has been helped by a significant reduction in financial
market stress.
But significant risks still persist, not least the impact of the gradual retreat from quantitative
easing in the US which likely entails near-term risks of volatility in capital flows and exchange
rates. The main worries in terms of the global outlook now seem to be linked to the emerging
markets, especially ones with current account vulnerabilities which the current volatility around
capital flows is accentuating. In some cases, there are doubts linked to the ability of structural
drivers to deliver the kind of growth rates made possible by stimulus policies during the crisis.
The International Monetary Fund (IMF) currently expects global growth of 3.75% this year and
4% in 2015. Overall growth in the advanced economies is due to accelerate from last years 1.9%
to 2.8% this year and 3.0% in 2015. Growth in the emerging markets should benefit from the
pick-up in the West, accelerating from 4.7% in 2013 to 5.1% this year and 5.4% next.
Real GDP growth, select countries (%)
10
8
6
4
2
0
-2
2011
2012
World
2013f
US
2014f
Euro area
2015f
China
2016f
Japan
Source: International Monetary Fund, World Economic Outlook, October 2013
Notwithstanding the increased optimism about the global outlook, there is acute awareness of
the need to accelerate growth so as to boost job creation at a time when productive resources in
are underutilized, especially the West. At their February summit in Australia, Finance ministers
and central bank governors of the G20 counties agreed on a goal of generating more than
USD2tn of additional output over the coming five-year period. The group, which makes up some
85% of the global economy, agreed on steps to boost investment and employment. The overall
effect of such measures, the group announced, would be to lift the trend growth rate of these
economies by more than 2%. G20 members countries are expected to present national growth
Page 3 of 29
strategies for the November G20 summit in Brisbane. The G20 central banks made a
commitment to careful monetary policy calibration.
Tapering gets underway

The US Federal
Reserve has begun a
gradual retreat from
its ultra-loose
monetary policy at a
time when the
economy is gradually
strengthening.
Having embraced an ultra-loose monetary stance during the global crisis, the US Federal Reserve
has begun to change course. The decision to launch a gradual withdrawal of the Quantitative
Easing program of bond purchases was agreed on 18 December. The initial step was a USD10bn
reduction in the monthly volume of bond purchases to USD75bn a month. The bank accounted in
late January another USD10bn cut in the program. On current projections, the Quantitative
Easing program could be phased out altogether by the end of the year, although further steps
have been explicitly linked to the performance of the economy. The policy shift follows growing
signs of resilience in the US economy, including a pronounced recovery in the real estate market,
which has had positive repercussions across other sectors. Also, the HSBC/Markit Purchasing
Managers Index reading for the US rose from 54.7 to 56.3 in February, the highest level
recorded since May 2010.
MSCI global stock market indices (Base January 2012 = 100)
160
140
120
100
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
80
2012
ACWI (45 countries, EM and DM)
GCC
2013
2014
EM (21 countries)
World (24 countries - DM only)
Source: MSCI
Even as the fundamentals are clearly strengthening, the recovery is still proceeding at a
measured pace, subject to several discontinuities. The latest revision to 4Q13 GDP data pointed
to another patch of unexpected weakness as the annual rate of growth was revised from an
initial estimate of 3.2% to 2.4%. This represented a sharp deceleration from the 4.1% pace
recorded in Q3. The weaker estimate reflected evidence of subdued retail spending, inventory
adjustments, and weaker net exports, as well as continued reductions in federal government
spending. Budget cuts are estimated to have reduced growth by 1.05 percentage points. The IMF
expects US growth to reach 2.8% in 2014 in a clear rebound from 1.9% in 2013. Growth is
expected to accelerate further to 3% in 2015, slightly held back by the recent budget deal which
will keep the so-called sequester in place into the 2015 fiscal year.
Also recent job data has generally failed to live up to expectations with only 113,000 new jobs
added in January and most analysts expect growth to remain below 2% in 1Q14. Several bouts of
Page 4 of 29
extreme weather conditions in recent months have been a significant drag on growth. Even the
housing recovery has spluttered somewhat of late, possibly in part due to an increase in
mortgage rates, but above all due to bad weather. Housing starts in January fell by 16% MoM
while buidling permits contracted by 5.4%. Durable orders in January fell by 1.0% MoM, probably
mainly due to seasonal factors and volatility in aircraft orders.
The labor market remains a source of concern even though open unemployment has declined
fairly consistently to 6.7% on the most recent reading in February. However, labor force
participation remains at a historically low level, reflecting significant spare capacity in the
economy and potenitally depressing consumption growth. A significant improvement in this
regard is likely a necessary precondition for a sustainable recovery in view of the improtance of
consumer spending in the US economy. At the same time, however, the fact that the open
unemployment rate is nearing the 6.5% mark will complicate the task of monetary policy makers
who had earlier suggested that this rate would be the threshold for revising their interest rate
stance. Recent indications suggest that rates will likely remain unchanged at least for as long as
inflation remains clearly below 2%.
S&P/Case-Shiller US National Home Price Index
160
150
140
130
120
110
100
90
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
80
Source: Standard & Poors
Europe emerges from the crisis

Risks have abated and
European growth
prospects continue to
improve, albeit in a
very gradual manner.
Growth in Europe has shown fairly consistent signs of accelerating in recent months, even if the
pace of recovery remains very slow, especially in the single currency area. Reversing a 0.4%
contraction last year, Euro-zone growth is expected to reach 1% this year and 1.5% in 2015. The
Economic Sentiment Indicator of the European Commission has been increasing for ten
consecutive months and now points to GDP growth of up to 1.5%. This compares to a pace of
0.5% in Q4. Growth should prove faster in the UK where looser credit has fuelled a housing
market pick-up and boosted confidence. The IMF foresees growth of 2.25% in 2014-2015.
The erstwhile fears of a Euro-zone break-up have now largely dissipated and the peripheral
economies have seen a significant improvement in their borrowing conditions. Ireland has exited
from the bail-out mechanism and there is a good chance that Portugal might follow suit. This
Page 5 of 29
reflects in part considerable success in the area of fiscal consolidation. Greece looks on track for
a small primary budget surplus of 0.4% of GDP. The Portuguese deficit looks likely to be 5.0% of
GDP, down on 6.6% in 2012.
But there are positive signs also elsewhere in the Euro-zone. The Euro-zone composite PMI
compiled by Markit/HSBC fell slightly from 52.9 to 52.7 in February but points to continued
expansion. Germanys Ifo survey in February reached its highest reading since July 2011, rising
from 110.6 in January to 111.3 while the German PMI rose from 55.5 to 56.1. By contrast, the
French PMI points to renewed weakness with a drop from 48.9 to 47.6.
In spite of the growing optimism, the ability of the European economies to create significant new
employment remains limited with the Euro-zone unemployment rate flat at 12%. At the same
time, significant structural risks continue to confront especially the Euro-zone economies:
Even though recent inflation data has defied expectations of deflation, risks in this regard
still persist, not least because of the strength of the Euro. At the same time, liquidity in the
banking system has been declining. February inflation unchanged at 0.8% in February.
Greece is currently in the midst of deflation and producer prices in Germany are in the
negative territory. This still seems to point to continued monetary easing by the European
Central Bank. The ECB is officially committed to keeping interest rates at their present or
lower levels for an extended period of time.
Reform fatigue has emerged as an increasingly real challenge in Europe and there is some
concern that this year's European Parliament elections in May will produce a significantly
more euro-sceptic chamber than its predecessor. The new parliament will have
unprecedented powers in terms of the EU budget and Single Market rules. It will also have a
key role in bringing into being key landmark pieces of institutional reform such as Fiscal
Compact and the banking union. Delays in implementing these projects may delay the much
needed return to a sustainable growth trajectory.
Shifting fortunes of emerging markets

Risk perceptions of
emerging economies
have been elevated in
recent months and
growth outlook has
become increasingly
differentiated.
Having been the primary engine of global growth since the onset of the current crisis, the
emerging economies seem to have embarked on a period of transition with increased
uncertainty and far less even growth than was the case until recently. The annual pace of
emerging market growth has been hovering around 4.5%. Whereas the leading emerging
markets sustained growth rates up around 8% during the first decade of the century, this has
fallen to around 5% of late. Asian emerging economies are leading the growth but have
experienced some renewed weakness of late. Growth has been particularly slow in Latin America
where it has been stuck at 2.5%. Uncertainties are particularly obvious in two areas:
One of the main risks associated with the US policy of tapering has been the possibility of a
reversal in global capital flow. Former Fed Chairman Ben Bernanke's announcement of the
possibility of such a policy change in May triggered a large-scale emerging markets sell-off as
the policy seemed to imply an increase in the relative cost of capital in the US. The actual
onset of tapering seems to have led to greater market differentiation among emerging
Page 6 of 29
economies with the most pronounced vulnerabilities evident in countries with substantial
external deficits. Latin American currencies have been especially hit by the sell-off which has
also affected economies such as Russia and Turkey. The Argentinean Peso has been the
hardest hit currency due to a 20% devaluation of the official exchange rate.
The heightened investor anxiety about emerging markets has been amplified in recent
weeks by political risk considerations, notably in markets such as Ukraine, Thailand, and
Venezuela. Investor sentiment has been especially tested by the stand-off between Ukraine's
interim government and pro-Russian separatist forces in Crimea and the east of the country.
This has had significant downward pressures on the Russian and Ukrainian stock markets and
currencies, among other things pushing the Rouble to a new record low vis--vis the US
Dollar. Anxiety in the broader European economy has been driven by the fact that much of
the natural gas supplied by Russia to Europe passes through the Ukrainian territory.
The riskier global environment has forced a number of leading emerging market central banks to
tighten their monetary stance. The Central Bank of Turkey most notably raised its one-week
report rate from 4.5% to 10.0%. Tightening steps have been taken also in India, South Africa, and
Brazil. Brazil has seen rates go up by 350 basis points since April 2013. The Peoples Bank of
China has once again focused its efforts on countering asset price bubbles by containing credit
growth. At the same time, however, the bank has also sought to put downward pressure on the
Renminbi, apparently in an attempt to counter speculative inflows based on expectations of
Renminbi appreciation. Recent selling pressure on the Rouble prompted the Central Bank of
Russia to announce a temporary 1.5 percentage point increase in its benchmark rate to 7%.
The outlook within the emerging market universe has become increasingly differentiated. The
main concern is associated with the largest emerging markets. Although Chinese Q4 growth
slowed slightly to 7.7%, recent trade data has been more positive. Chinese exports and imports
rose by 10.6% and 10.0% YoY, respectively, in January, although this pick-up may have been due
to seasonal factors. The HSBC/Markit Purchasing Managers index for China has remained below
the critical 50-mark in recent month, falling from 49.5 in January to 48.3 in February. Growth is
expected to hover around 7.5% in 2014-2015. India has benefited from renewed economic
reform impetus. Having reached 4.4% last year, Indian growth should accelerate to 5.4% this
year and 6.4% in 2015.
Relative stability for oil prices

Global oil prices have continued to face a persistent tug-of-war between signs of growing supply
at a time when the consolidation of the global recovery is countering the erstwhile demand
erosion concerns. The outcome has continued to be one of some volatility around a generally flat
trend. The OPEC reference basket price increased somewhat from an average of USD104.71 per
barrel in January to USD105.38 in February. Uncertainties linked to the Russian-Ukrainian standoff have since pushed this up further. According to the current projections of the US Energy
Information Administration (EIA), Brent and WTI will average USD105.42 and USD93.33 per
barrel, respectively, by the end of this year.
Page 7 of 29
Global oil prices have

demonstrated
considerable resilience
at a time when both
the demand and
supply sides of the
market are
demonstrating
greater dynamism.
Global oil demand is expected to continue to increase over the coming year, even though a
number of emerging markets have experienced increases in their energy costs due to currency
depreciation. The current International Energy Agency (IEA) projection is for a 1.3% or a 1.4 mbd
gain to a total of 92.5 mbd. Global oil demand growth has accelerated over the past 18 months
due to a recovery in the Western world. Chinas crude imports alone rose by 11.9% YoY to an alltime record of 28.2mn tn in January.
Even though demand and supply for oil remain fairly finely balanced, a number of important
structural shifts are taking place on the supply side. Firstly, the unconventional oil story is
gathering momentum both in terms of output gains in the US and by expanding into new
jurisdictions. The US oil output has risen by an unexpected 39% since 2011 15% last year alone
and is expected to reach 8.26 mbd this year. The country could now become the worlds largest
oil producer by next year. The EIA expects US crude production to rise to 9.5 mbd by 2016, which
would be the highest level since 1970 peak. Canadas oil output is expected to reach 4.85 mbd by
2020, according to local projections. In a potential complication, although the US authorities
have authorized some oil export deals, the current legislation banning exports of oil constitutes a
potential limitation on new investment.
Crude oil prices (USD/barrel)
2009
WTI spot
2012
Jan
Jul
2013
Oct
Apr
Jan
Oct
Jul
Jan
2011
Apr
Oct
Jul
Apr
Jan
Jul
2010
Oct
Apr
Jan
Oct
Jul
Jan
2008
Apr
Oct
Jul
Apr
Jan
160
140
120
100
80
60
40
20
0
2014
Europe brent spot
Source: US Energy Information Administration
Significant new
developments are
underway on the
supply side with
particularly significant
output gains in North
America.
Efforts to encourage fracking are underway in a number of countries ranging from the UK to
China. Among other things, test drilling is starting on the Bazhenov layer in western Siberia which
envelopes the regions mature conventional oil fields and shares a number of geological
similarities with the Bakken shale field in the US.
The second major uncertainty on the supply side has to do with the availability of conventional
oil supplies, with most of the attention focused on the future output and export capacity of Iran,
Iraq, and Libya.
The Libyan output has been highly variable in recent months due to internal political
instability. Having risen to 1.6 mbd in July 2012, Libyan output troughed at 210,000 b/d in
December 2013. It once again rose from 230,000 in December to 500,000 in January after
Page 8 of 29
the Sharara field resumed operations. However, this figure relapsed to 231,000 b/d in late
February after renewed disruptions.
Iraq is understood to be planning to triple its crude production capacity to some 9 mbd by
2020. Iraqs production in December stood at 3 mbd and the country has boosted its exports
to China through lower prices and better export terms. However, output gains are being
limited, among other things, by limited storage capacity at the Faw terminal. Iraqs output
rose some 400,000 b/d in February to 3.4 mbd, the highest since 1980.
Norway expects its crude output to increase by 0.7% this year after 13 straight years of
declines. Although most fields are very mature, new potential exists, especially in the
Barents Sea. The new Johan Sverdrup field may eventually yield more than 650,000 b/d. The
field was discovered in 2010 and could supply up to a quarter of Norways oil within a
decade. Statoil estimates the total reserves of Sverdrup at 2.9bn barrels of oil equivalent.
Mexico is also eyeing output gains and Pemex expects exploration and production
agreements with foreign companies before the end of the year. Pemexs output has declined
from 3.3 mbd in 2004 to 2.52 mbd in 2013. However, the country now expects to boost this
to as much as 4 mbd by 2025.
Bank of America recently estimated that global supplies could grow by 1.5-3 mbd if Libyan and
Iranian supplies were to normalize. However, a 1 mbd production cut by OPEC could contain any
price decrease to USD5-8 a barrel. Even on a more pessimistic scenario, a fall below USD90 per
barrel is seen as highly unlikely due to limited spare capacity.
This is partly because some more established suppliers are struggling to maintain output levels:
Indonesias output is due to reach 804,000 b/d this year, significantly below the
governments target of 870,000.
Venezuela is experiencing an economic crisis with more than 50% inflation. Venezuelan
production dropped to 2.45 mbd in December from a 2012 average of 2.9 mbd. Oil sales to
the US have declined to their lowest level in 28 years and the planned Keystone pipeline
from Canada would almost certainly depress them significantly further
The large Kashagan field in Kazakhstan has been beset by delays after a pipeline fault.
Production is unlikely to resume before the second half of the year. Kazakhstan is targeting
2.2 mbd production by 2018, a n increase by roughly about a third over current levels.
Page 9 of 29
Global oil demand and supply dynamics (mbd)

2013 Global oil demand
Advanced Economies
Emerging Economies
China
2014 Global oil demand (mbd)
Advanced Economies
Emerging Economies
China
2013 Global oil supply (mbd)
OPEC
Non-OPEC
2014 Global oil supply (mbd)
OPEC
Non-OPEC
IEA
OPEC
EIA
91.3
46.1
45.2
10.1
92.6
46.0
46.6
10.4
91.5
36.8
54.7
90.0
45.9
44.1
10.1
91.1
45.8
45.3
10.4
90.1
36.0
54.2
91.0
35.5
55.5
90.4
46.0
44.4
10.7
91.3
46.0
45.3
11.1
90.0
35.9
54.1
91.7
35.7
56.0
56.4
Source: International Energy Agency, Organization of the Petroleum Exporting Countries, US Energy Information
Administration
Implications for Bahrain

The improving global economic outlook is generally supportive of sentiment and growth in
Bahrain and the broader region. However, worries about the outlook for some emerging markets
constitute a potential complication.
The prospect of relative oil price stability should underpin confidence, an effect that may be
amplified in the event of mounting supply concerns from Russia
The US tapering effort has the potential to push up the cost of capital but the process is
likely to be gradual. The Federal Reserve remains committed to a very low interest rate
stance for now
The growth prospects of emerging markets are improving and should be supportive of
Bahraini exports which are increasingly directed eastward. However, the pace of growth is
likely to be fairly measured by historical standards
Page 10 of 29
THE GCC REGION
NON-OIL ACTIVITY TO DRIVE GROWTH
Deceleration in
regional growth rates
has gone hand in hand
with a shift from the
hydrocarbonsgovernment nexus to
the non-oil private
sector.
Economic growth in the GCC region decelerated markedly last year, with the IMF estimating 3.7%
expansion in 2013 as compared to 5.2% in 2012. The loss of momentum was due to a diminished
contribution from both the hydrocarbons and the government sectors. This represented a sharp
departure from the post-2009 growth patterns when economic activity was primarily
underpinned by the global oil price recovery and government spending which typically involved a
substantial countercyclical element. Encouragingly, however, as oil sector has lost momentum,
activity in non-oil sectors of the regional economies has remained robust, supported by strong
growth in bank lending.
This pattern of private and non-oil-led growth is likely to persist this year as well. While the
economic cycle has shown some signs of turning again with evidence of a loss of momentum in
the growth of bank credit, for instance other developments have served to consolidate or even
strengthen the rebound in parts of the region. Preparations for landmark events such as the
2020 World Expo in Dubai or the 2022 FIFA World Cup in Qatar are key cases in point. Also, the
concomitant real estate market recovery has boosted activity, in part by reversing the asset price
declines that had weakened some financial sector institutions.
Projected GCC real growth (%)
14
12
10
8
6
4
2
0
2011
2012
2013
Bahrain
Kuwait
Oman
2014
Qatar
2015
Saudi Arabia
2016
UAE
Source: International Monetary Fund, World Economic Outlook Database, October 2013
An outlook of continuity for non-oil growth

The performance of the Gulf economies was characterized by resilience in 2013. The largest
regional economy, Saudi Arabia, grew by an estimated 3.8%, led by a 5.5% gain in the non-oil
sector. Other recent data has been largely consistent with these figures. The combined profits of
Saudi listed companies in 2013 reached SAR103.3bn (USD27.5bn) in a 6.6% increase over 2012.
The petrochemicals sector accounted for 33% of the total profits, followed by commercial banks
Page 11 of 29
at 28%, and telecommunications at 14%. Cement sales rose by 4% to 55.6mn tn while car sales
rose to 570,000 in a 10% YoY increase. Saudi exports totaled SAR1.456trn, up 6.5% YoY.
The performance of the other regional economies has been broadly comparable. UAE growth has
benefited from an improving real estate sector as well as high tourist arrivals. Also bank lending
has resumed at an accelerating pace. While Qatar has seen minimal oil growth, non-oil growth in
Qatar has been fairly steady in the neighborhood of 10% YoY. Kuwaiti growth has been above all
led by the oil sector and is vulnerable to lower production, although there are signs of project
spending finally picking up at a time when bank lending has also accelerated.
Deceleration in
regional growth rates
has gone hand in hand
with a shift from the
hydrocarbonsgovernment nexus to
the non-oil private
sector.
The latest HSBC/Markit Purchasing Managers Index points to continued optimism among
businesses. Non-oil business activity in Saudi Arabia accelerated for the third consecutive month
in January, reaching its highest level since October 2012. The Saudi headline reading rose from
56.7 in October 2013 to 59.7 in January 2014. It subsequently retreated somewhat to 58.6 in
February. The UAE headline reading rose from 56.3 in October 2013 to 57.1 in January 2014 and
further to 57.3 in February.
In general, analyst expectations point to relative continuity in regional growth this year and next.
According to the latest Reuters poll of analysts, Saudi growth is expected to accelerate somewhat
this year with at 4.2% followed by 4.3% in 2015. Growth in the UAE is projected to remain flat at
4.3%. Qatari growth is expected at 5.5% in 2014 and 6.0% in 2015. The IMF expects GCC growth
to reach 4.1% this year in a slight acceleration over 2013.
HSBC/Markit purchasing managers index
62
50 =no change on previous month
60
58
56
54
52
50
Saudi Arabia
UAE
Source: HSBC, SABB
The non-oil sectors will continue to drive growth

Continuing the pattern established last year, growth in the GCC region looks likely to remain
primarily dependent on non-oil activity. Positive developments are evident across the broad
spectrum of non-oil activity but a cyclical recovery is becoming particularly pronounced in the
real estate sector, albeit with marked intra-regional variations. Pinsent Masons sixth annual GCC
Construction Survey found that 90% of companies were more optimistic than before while 77%
reported a better order book. 53% reported an increase in the cost of capital.
Page 12 of 29
A real estate rebound

in much of the region
has become an
increasingly important
driver of positive
sentiment in the nonoil economy.
Optimism is most pronounced in the UAE, partly thanks to the confidence effect of the decision
to award World Expo 2020 to Dubai. Following a sharp price correction by more than 50% during
the global crisis, property prices in Dubai are estimated to have rebounded by more than 20% in
2013. According to Jones Lang LaSalle estimates, a pronounced recovery materialized also in Abu
Dhabi where prime real estate prices rose 25% while rentals rose 17%. The rebound in the capital
was partly due to efforts to attract public sector employees living outside the emirate as well as a
decision to scrap rent controls.
Real estate activity is strong also in Saudi Arabia, although new supply of commercial real estate
is containing prices in some of the main markets. An estimated USD94.1bn of construction
projects are reportedly confirmed for Saudi Arabia in 2014. Although some industry reports have
suggested delays in as many as 36% of construction projects due to the recent crackdown against
illegal workers, recruitment companies have started providing workers on a temporary basis to
relieve shortages.
Regional tourism continues to be an important growth driver. According to the International Air
Transport Association (IATA), Middle East airlines saw 12.1% YoY growth in passenger traffic in
2013 in a slight slowdown from the 15.4% figure recorded in 2011. Capacity grew slightly faster
by 12.8%. The global increase in passenger demand in 2013 was 5.2% while capacity rose by
4.8%. The main exception to the broad picture at present is Saudi Arabia where the number of
visas issued by Saudi embassies reached 10.36mn last year in a 3.8% drop compared to 2012.
There was a 20.4% drop in pilgrimage visas while the number of visit visas rose by 7.2% to
1.13mn. The government has announced plans to continue to impose a 20% cut in foreign
pilgrims and a 50% reduction in domestic pilgrims also during the coming Hajj season due to
construction work in Makkah. The growth potential remains considerable, however. According to
recent independent estimates, the Saudi tourism sector could reach annual growth of 4% to
SAR30.9bn over the decade to 2023. The number of visitors is expected to rise to 21.3mn,
generating revenues of SAR60.9bn by 2023. The government is planning to invest more than
USD30bn in its airports by 2020 while 34,800 new hotel rooms are planned over the coming five
years. A new local carrier, SaudiGulf Airlines, was launched recently. A USD2bn deal for
Bombardier aircraft was signed at the Bahrain International Air Show.
Large-scale infrastructure projects will continue to account for a significant element of non-oil
activity in several areas:
Diversification. Saudi Arabia recently signed contracts worth SAR36bn in connection with
the establishment of a new mineral industrial city in Waad al Shamal which will have one of
the worlds largest phosphate plants costing USD6.9bn. In a boost to the regional primary
sector, Saudi Arabia in December announced plans to inject USD10.6bn into aquaculture
projects to produce 1mn tn of fish over the coming 17 years. Oman is planning investments
of USD1.3bn in fisheries development up to 2020 and the UAE is understood to be planning
several large projects. Diversification will be a key element in pursuing the goal announced
by UAE Prime Minister Sheikh Mohammed bin Rashid Al Maktoum of increasing the
countrys GDP per capital by 65% -- to around USD80,000 in current prices -- over the next
seven years.
Page 13 of 29
Power generation. Following the launch of its nuclear program in 2008, the UAE has signed
cooperation deals with the US, the UK and Russia. Saudi Arabia plans to construct 16 nuclear
reactors over the next 20 years at an estimated cost of USD80bn. The first reactor is due to
be on line by 2022 and total capacity should reach 17GWe by 2032 some 15% of the
projected energy requirements of the Kingdom. Saudi Arabia has concluded treaties with
France and China.
Health care. The rising population is increasingly the urgency of building health care capacity
which, moreover, lags below global averages in many areas. Bahrain and Saudi Arabia spent
3.8 and 3.7% of their GDP, respectively, on health care followed by 3.3% in the UAE and 2.7%
in Kuwait. The figure in Qatar is 1.9% and in Oman 2.3%. The US devotes 17.9% of its GDP to
health care. The corresponding proportion in the Netherlands, France, Canada, and Germany
in 11-12% and in the UK 9.3%. For instance, the number of hospital beds in Saudi Arabia is
2.2 per 1,000 residents, below the global average of 3 and the advanced economy average of
5.5. Health care spending has risen from USD8bn in 2008 to USD27bn in 2012, a figure that is
expected to reach USD46bn by 2017. The government is offering private operators loans to
cover up to one-half of the cost of the hospitals. A new law required polyclinics to be
renamed special medical complexes and to appoint consultant physicians and specialists.
Private sector participation in health care is estimated at 44% in Saudi Arabia. The largest
health care projects currently underway in the region include the USD5.3bn King Abdullah
Medical City in Saudi Arabia, the USD4bn Sheikh Khalifa Medical City in the UAE, the
USD2.3bn Sidra Medical and Research Center of the Qatar Foundation, and the USD1.6bn
Jaber Ahmed Al Jaber Al Sabah Hospital in Kuwait.
Railway. Work on the emerging GCC rail network has begun. 266 km of the Etihad Rail in the
UAE from Shah and Habshan to Ruwais is due to be operational by the end of this year and
will be used for freight traffic. Work on the link between the Saudi border, Al Ain, and Dubai
is due to start this year. The second phase of the 1,200 km line with an estimated total cost
of AED40bn is due to be completed by 2016 while the third stage is expected to be
completed by 2017. Oman is due to start construction of a line between Sohar and Al Ain this
year.
Local transportation. A number of efforts are underway to develop public transportation
solutions for urban areas. For instance, the SAR25.5bn Makkah Integrated Transport System
is getting set up. The first phase will include two metro lines with a total length of 46 km,
40% of it underground. The eventual plan is a 114 km network of four lines integrated with
the bus network.
Seaports. Highlighting the growing trade volumes passing through the GCC, several key
projects are in progress. In Saudi Arabia, the primarily focus is on the King Fahd Industrial
Port and Yanbu Commercial Port with projects of SAR1.2bn pending. Saudi seaports
currently have a capacity of 520mn tn and 12 mn containers.
Page 14 of 29
Water. The Saudi Ministry of Water and Electricity plans to expand sewage networks to 70%
of all urban areas by the end of 2019. The current coverage is 49%, which is due to rise to
52% by the end of the year. A new processed water initiative is designed to seek commercial
uses for processed waste water. The National Water Company is currently implementing 453
water projects worth SAR26bn.
Continued moves toward fiscal consolidation

The fiscal stance of
the GCC governments
is likely to be fairly
conservative by recent
standards.
The growing importance of non-oil private sector activity in the region has gone hand in hand
with a much more moderate pace of government as compared to recent years. For instance, the
2014 Saudi budget sees an expenditure increase of only 4% over the 2013 plan, in the smallest
relative increment since 2003. This compares to expenditure hikes of 19% in 2012 and 2013.
Public sector expenditure in the UAE is projected to grow by some 3.2%. The UAE federal budget
for the 2013-2016 session is set to increase by 15% from the preceding period to AED140bn. The
general budget for 2014 is set at around AED46.2bn, an increase of AED1.6bn over last year.
Oman is expected to see expenditure growth decelerate from 15% to 5%.
The draft Kuwaiti budget for the 2014/15 fiscal year, which is due to start in April, fits the same
pattern. Following an annual average rate of spending increases of 15% over the past decade,
the budget foresees a relatively modest 4% gain in expenditure. Total government expenditure is
expected to reach KWD21.9bn (USD57.7bn). Moreover, the Kuwaiti government is reportedly
undertaking a review of subsidies this year. The objective is to target subsidies for those in need.
The more moderate pace of spending is partly reflective of the reduced need for countercyclical
spending at a time when the global recovery looks set to strengthen. But it is also driven by the
lack of obvious upward momentum in the global oil markets which risks significantly containing
revenues growth at a time when the regional fiscal systems remain primarily hydrocarbonsdriven.
Hydrocarbons production under renewed downward pressure

Regional oil
production has been
under renewed
downward pressures
in recent months and
the sector may make a
small negative
contribution to
regional growth this
year.
The relatively finely balanced global oil market is likely to translate into relative stability in GCC
oil production with especially Saudi Arabia likely to continue the established pattern of finetuning the market through short-term variations in production. The combined output of the
regional OPEC producers has moderated somewhat since the turn of the year. Following an
approximately 170,000 b/d drop in February, the combined regional output reached 15.96 mbd.
This drop reportedly followed a 119,00 b/d drop in January. This was the first time the regional
OPEC total fell below 16 mbd since June 2013. According to Bloomberg estimates, Saudi Arabias
output fell by 110,00 b/d. The UAE cut its production by an estimated 40,000 b/d and Kuwait by
20,000 b/d. On current projections, the growth contribution of the hydrocarbons section is likely
to be slightly negative in most of the region.
Page 15 of 29
Monthly oil production by the leading GCC producers (000 b/d)

12,000
10,000
8,000
6,000
4,000
2010
2011
Bahrain
Kuwait
2012
Saudi Arabia
Nov
Sep
Jul
May
Mar
Jan
Nov
Sep
Jul
May
Mar
Jan
Nov
Sep
Jul
May
Mar
Jan
Nov
Sep
Jul
May
Mar
Jan
2,000
2013
Oman
Qatar
UAE
Source: Joint Organisations Data Initiative
Relative price stability set to continue

Price pressures are
likely to remain fairly
subdued across the
region.
Inflationary pressures in the GCC have remained fairly measured in recent months, reflecting
global trends. The reduction in price pressures has been particular pronounced in Saudi Arabia
where the annual pace of inflation in January was 2.9%, the lowest reading since August 2013.
The negative momentum has been above all driven by food prices which are now rising at
around 5% YoY, down from a peak of some 7% last summer. Housing costs have been relatively
flat in recent months and are now rising at around 3.5% a year.
Price pressures area generally fairly subdued also elsewhere in the region with Qatar the main
outlier due to the brisk non-oil activity supported in part by the FIFA World Cup preparations.
Qatari inflation is expected to rise to 3.9% this year and 4.2% next. Also Kuwait is likely to see a
slight increase in inflation from last years 2.7% to the neighborhood of 3%. Housing costs in
particular have shown some renewed momentum in recent weeks.
Consumer price inflation in GCC countries (% YoY)
2011
Bahrain
2012
Kuwait
Oman
Qatar
2013
Saudi Arabia
Jan
Nov
Sep
Jul
May
Mar
Jan
Nov
Sep
Jul
May
Mar
Jan
Nov
Sep
Jul
May
Mar
Jan
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
2014
UAE
Source: National statistical offices
Page 16 of 29
Bank credit cycle showing signs of turning
Credit growth rates

have converged
significantly across
the region and remain
generally robust.
Bank credit continues to be an important driver of economic activity as the private sector leads
the way. In a marked departure from the sharp dichotomy that characterized the GCC data
during much of the global downturn, the pattern of bank lending is becoming increasingly
uniform across the region. The countries that have seen the fastest growth in bank lending led
by Qatar and Saudi Arabia are experiencing a gradual moderation even if growth remains brisk.
By contrast, Kuwait and the UAE, have seen a fairly marked increase in lending due to a stronger
deposit base but also an improvement in the provisioning cycle. The reversal of the negative
housing market dynamics have had a significant positive impact of financial sector health and
general optimism.
Saudi Arabia has seen the pace fall from peaks of more than 16% in the first half of last year to
12.3% in January. Lending in Qatar slowed to 13.4% as of November 2013. Lending in Kuwait
grew by 8.1% as in 2013 while the UAE figure rose to 7.1%, the fastest pace since 4Q09.
However, the monthly absolute increments in Kuwait have been declining in recent months.
Oman has seen a fairly pronounced deceleration in bank credit growth to 6.3% as of November.
The liquidity situation in the regional banking system is generally strong and deposit growth
remains robust. For instance, Saudi Arabia has seen YoY deposit growth in the range of 10-15% in
recent months. Deposits at Saudi banks rose to a record USD344bn in 2013. The UAEs aggregate
bank deposits rose by 9.5% YoY in December 2013 to a total of USD348.2bn. Qatar, Saudi Arabia,
and the UAE are all seing low double-digit growth in bank assets. The banking sector is highly
profitable. Loan-to-deposit ratios are highest in Qatar and Oman, at or just above 100%. The
figure for the UAE has declined to just over 90%. The figures for Kuwait and Saudi Arabia are in
the low 80s.
YoY growth of domestic bank credit (%)
50%
40%
30%
20%
10%
0%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
-10%
2011
Kuwait
KSA
UAE
2012
Oman
Qatar
2013
Bahrain
Source: National central banks
Page 17 of 29
Equity markets continue their strong run

The overall performance of the GCC equity markets remains very strong with significant gains
seen across the region throughout the past year. 2013 proved a particularly strong year from the
UAE markets with the Dubai index more than doubling in a 107.7% gain and Abu Dhabi rising by
63.1%. The gains elsewhere in the region were far less strong but still robust by historical
standards. The Kuwai index rose by 27.2%, Saudi Arabias Tadawul by 25.5%, Qatar by 24.2%, and
Oman by 18.6%.
GCC equity market indices (Jan 2011=100)
310%
Bahrain All-Share
Index
Kuwait Market Index
260%
210%
MSM 30
160%
Qatar Exchange Index
Jan
110%
Tadawul All-Share
Index (TASI)
ADX Index
2014
DFM Index
Nov
Jul
2013
Sep
May
Jan
Mar
Nov
Jul
2012
Sep
May
Jan
Mar
Nov
Jul
2011
Sep
Mar
May
60%
Jan
Regional stock
markets have
continued their strong
performance this year
led by the UAE and
Qatar exchanges.
Source: Bahrain Bourse, Kuwait Stock Exchange, Muscat Securities Market, Qatar Exchange, Tadawul, Abu Dhabi
Securities Exchange, Dubai Financial Market
Continuing the trends, 2014 has opened with a generally positive note for the regional indices.
The UAE bourses have once again led the way with Dubai posting a 24.6% gain as of the end of
February. Abu Dhabi gained 16.2%. Qatar rose by 14.1%. The gains elsewhere in the region have
been more muted. Saudi Arabia advanced by 6.1% and Oman by 3.9%. Kuwait held the rear with
a 1.9% gain following a 0.8% drop in February.
After a subdued 2013,

primary issuance by
regional companies
looks likely to
accelerate this year.
In spite of the strong performance of the secondary equity markets, new issuance activity
remains fairly subdued. Q4 saw five regional primary issues, two of them on international
exchanges. The international offerings were by Damac Real Estate Development and Action
Hotels of Kuwait. Damac raised USD400mn in a London IPO while Action Hotels listed on London
Stock Exchanges AIM platform following a USD50mn offering. By contrast, the three offerings on
regional exchanges raised a fairly modest USD178.8mn. Fund raising was dominated by Bawans
USD143.9mn IPO in Saudi Arabia. Takaful Oman Insurance and Al Madina Takaful raised
USD10.6mn and USD24.2mn, respectively. Overall, 2013 saw nine IPOs, the same number as
2012. The proceeds declined 58% YoY. However, the three international offerings by GCC
companies raised 9% more capital than the regional IPOs. Mesaeed Petrochemical Holding Co.
began a USD905.3mn offering on Qatar Exchange in but completed it only in January.
The improved performance of the regional bourses has helped contribute to a significant IPO
pipeline for the coming months. Saudi Arabias Construction Products Holding is planning to float
a 30% stake in the coming months. The company is part of the Saudi Binladin Group and has
annual sales of some SAR10bn. The Sulaiman Al-Habib Medical Group and Almana General
Hospitals are planning list this year or in early 2015. Recent listings include Dallah Healthcare and
Page 18 of 29
National Medical Care Co. Saudi Airlines is expected to IPO its cargo units this year with the
maintenance units due to be listed in 2015. Saudi Arabias National Commercial Bank is floating a
15% stake.
GCC IPO activity (regional exchanges)
1,200
1,000
800
3
600
2
400
1
200
-
0
Q1
Q2
Q3
2011
Q4
Q1
Q2
2012
IPO Value in USD mn (LHS)
Q3
Q4
Q1
Q2
Q3
Q4
2013
Number of IPOs (RHS)
Source: Zawya
Fixed income market continue their strong performance
The GCC fixed income

markets continue to
perform strongly with
a steady stream of
landmark issues.
The regional fixed income markets have become an increasingly important element of the
financial sector architecture. Continuing the expansion of regional sovereign markets, UAE
Minister of Finance Sheikh Hamdan bin Rashid Al Maktoum recently announced that the
government had established a vision to develop the government bond market. Overall
conventional bond issuance by GCC names reached USD29.7bn last year through 87 offerings.
Total GCC bond issuance in 2012 reached USD25.6bn, raised through 62 issues. UAE names
dominated the market in both years, although their share declined from 57.1% in 2012 to 35.1%
last year.
Q4 saw a marked acceleration in the regional issuance activity. A total of 20 primary issues worth
USD8.1bn compared to 15 offerings worth USD6.1bn in Q3. The main offerings in the commercial
space were by USD2bn worth of issuance by Saudi Arabias SABIC, offerings by three UAE banks
and a maritime company.
Activity since the turn of the year has been dominated by sovereign issuance, most notably
QAR13bn issued by Qatar for tenors of three and five years. Kuwait Projects Company (Holding)
was the largest corporate name with a USD500mn issue.
Regional sukuk issuance continued its steady rise last year with a total of 69 offerings worth
USD26.4bn. This compared to 63 issues worth USD24.9bn in 2012. Saudi Arabia is the dominant
regional jurisdiction in terms of sukuk issuance. Saudi names accounted for 57.5% of all regional
issuance in 2013, up from 44.8% in 2012.
Page 19 of 29
In terms of its recent dynamics, the GCC sukuk market closed 2013 with a clear pick-up in
activity. 19 new issues worth USD10.5bn were placed in Q4, which marked a sharp improvement
on the USD1.3bn raised through ten issues in Q3.
Saudi banks have come to the market to boost their capital resources. Riyad Bank issued a
SAR4bn (USD1.1bn) sukuk in November followed by a SAR2.5bn (USD0.7bn) offering by Saudi
Hollandi Bank in December. SABB, similarly, raised SAR1.5bn (USD0.4bn) in December. Qatars
Ooredoo raised USD1.25bn through a five-year note in December.
2014 has opened on an even stronger note for the regional sukuk markets. Key offerings have
included a SAR4.5bn (USD1.2bn) sukuk by Saudi Electricity Co., a SAR5bn (USD1.3bn) offering by
the National Commercial Bank, and a USD1.5bn note by the Islamic Development Bank. Qatar
raised some USD3bn through two sovereign sukuk.
GCC bond and sukuk issuance (USD mn)
12,000
10,000
8,000
Qatar
6,000
Kuwait
4,000
UAE
2,000
Oman
Sukuk Bonds Sukuk Bonds Sukuk Bonds Sukuk Bonds

Q1
Q2
Q3
Q4
2013
2013
2013
2013
Bahrain
Saudi Arabia
Source: Zawya
Implications for Bahrain

The regional backdrop for growth remains very benign.
Investor confidence levels are high which has driven strong private sector activity and should
fuel an ongoing search for regional growth opportunities.
The regional financial market conditions are favourable with strong liquidity and ample
issuance activity in the capital markets. This should translate into good availability of regional
capital for attractive investment opportunities.
The development of the region as an international tourism destination is continuing apace
and offers opportunities for Bahrain to capitalize on the positive trend.
Page 20 of 29
BAHRAIN
THE NON-OIL SECTOR POSITIONED FOR A PICK-UP

A number of emerging
drivers should deliver
a significant pick-up in
non-oil growth this
year.
After a slowdown in its growth last year, the Bahraini non-oil sector is well positioned for a clear
acceleration this year. The approval of the two-year budget half way through 2013 put new
growth drivers in motion and significant capital investments many of them funded from
regional sources are expected to be launched shortly. The liquidity situation of the local
banking sector is favourable. These trends potentially offer the makings of a virtuous circle
which, with positive knock-on effects on confidence, could fuel an acceleration in non-oil growth
to well over 4%. With relative stability expected in the hydrocarbons sector, headline growth for
the year as a whole now look likely to end up between 3.5 and 4% in a slight deceleration from
the pace seen in 2013 thanks to the oil sector rebound. This is broadly in line with what looks
likely to be the regional norm.
GDP growth composition and current projections
6%
Hydrocarbons
Non-oil GDP
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
2010
2011
2012
2013f
2014f
2015f
Source: Central Informatics Organization, Economic Development Board estimates
The oil sector set to stabilize after an impressive rebound

Following an
impressive rebound
last year, the oil sector
looks likely remain at
current capacity this
year.
The performance of the Bahraini oil sector during the last quarter of 2013 was strong. The output
of the offshore Abu Saafah field remained above capacity with a monthly average of 161,043
b/d. The average for the Bahrain field was 48,973 b/d. During the year as a whole, Abu Saafah
produced at an average rate of 149,708 b/d in other words, at 99.8% of its full capacity. The
average rate of onshore production was 47,881 b/d. Bahrains natural gas production in 2013
was approximately 2,500mn cu ft per day, which compared to 1,970 mn cu ft in 2009.
Following an impressive rebound last year, the hydrocarbons sector looks likely to experience a
year of stability in 2014 as the main offshore Abu Saafah oil field looks likely to remain at full
capacity with the exception of scheduled maintenance in May. Production from the onshore
Bahrain field is expected to remain more or less at current levels this year as the results of
various pilot projects are being evaluated. In contrast to last year, this is likely to mean at best a
modest contribution from the hydrocarbons sector to GDP growth this year.
Page 21 of 29
Average daily output of oil, barrels

250,000
200,000
150,000
100,000
50,000
-
Bahrain Field
Abu Sa'afah Field
Total
Source: National Oil and Gas Authority
The non-oil sector likely to return to the forefront

A significant rebound
in project spending
this year should boost
confidence in the
economy.
In a likely reversal of the pattern observed last year, economic growth in the Kingdom looks likely
to be driven by the non-oil economy which should contribute virtually all of the increment in
GDP in 2014. Encouragingly, a number of factors are potentially paving the way for a significant
rebound in non-oil growth. Three of them are of particular importance:
Following a delay in incremental government spending due to the fact that the 2013-14 state
budget was only approved half way through the year, government expenditure should
remain more robust than during much of last year. The annual growth rate of the
government services sector in the national accounts slowed down to 2.7% YoY in Q2-3 of last
year in a sharp reversal of the pace seen in 2012.
A number of infrastructure projects approved by the GCC Development Fund are due to be
launched in the coming months. According to recent Ministry of Finance statements, Bahrain
is due to implement projects worth USD4.43bn in the coming years.
The Bahraini banking sector is characterized by high levels of liquidity and low loan-todeposit ratios. This should enable it to boost lending once the project flow accelerates and
confidence levels improve.
A number of significant infrastructure projects are due to start during the year. Some 49% of the
spending envisaged under the umbrella of the Gulf Development Fund are due to be allocated to
the construction of 2,548 housing units in 2013, 1,443 in 2016, and 5,241 in 2017. The remainder
will mainly go into the water and power sector.
Another key project is the modernization and expansion of the Bahrain International Airport.
Following approval in October, the venture is being managed by Aroports de Paris Ingrierie
(ADPI). The BHD13mn agreement includes designing and supervising the construction of a new
passenger terminal. This project is expected to increase the airports capacity from 9mn to
13.5mn passengers per year. Construction of the new passenger terminal of more than 150,000
Page 22 of 29
sq m is expected to begin in late 2014 and is scheduled to be completed in late 2018. In addition,
ADPI will devise a plan for the development of the airport over the next 20 years. In the
meantime, the restructuring program of the national carrier, Gulf Air, has continued and the
carrier signed a USD100mn agreement with Rolls-Royce for its Airbus A330 fleet.
YoY real growth of key sectors, 2010-3Q13
2010
YoY growth
2011
2012
2013
Annual
Annual
Annual
Q1
Q2
Q3
Q4
Crude Petroleum & Natural Gas
0.1%
3.6%
-8.5%
-4.7%
-14.6%
-6.8%
-8.0%
8.0% 18.6% 11.2%
Manufacturing
3.8%
3.1%
4.7%
8.7%
8.8%
2.4%
-1.1%
2.0%
-1.9%
5.6%
Construction
2.4%
-7.9%
4.1%
1.4%
5.8%
2.8%
6.6%
2.8%
5.6%
0.6%
Trade
2.6%
-1.7%
5.9%
5.8%
8.1%
7.9%
1.7%
1.6%
1.8%
0.3%
11.1%
-17.2%
13.6%
13.5%
20.7%
13.5%
7.7% 13.5%
8.9%
4.6%
3.2%
4.8%
1.7%
2.1%
15.1% 10.0%
6.2%
7.8%
8.2%
Hotels & Restaurants

Transport and Communication
Q2
Q3
3.9%
6.1%
4.4%
6.1%
3.1%
13.9%
11.2%
12.5%
13.6%
11.6%
Real Estate & Business Activities
4.3%
-6.6%
3.6%
1.2%
3.4%
3.8%
6.2%
1.7%
1.8%
0.9%
Financial Corporations
7.3%
-0.4%
4.0%
4.3%
3.7%
4.2%
3.9%
3.0%
2.8%
1.7%
Government Services
5.1%
14.4%
12.0%
13.3%
12.5%
11.3% 11.1%
4.2%
2.7%
2.7%
Other
7.3%
1.2%
11.6%
10.5%
11.8%
7.5% 17.0%
0.4%
3.4%
3.5%
GDP
4.3%
2.1%
3.4%
4.8%
3.0%
3.4%
4.2%
5.3%
4.6%
Social & Personal Services
5.4%
Q1
2.5%
Source: Central Informatics Organisation
Foreign direct investment inflows strengthen

In 2013, the EDB attracted USD114mn of foreign investment into the country from North
America, Europe and Asia a 12% increase on the level of investment secured in 2012. The new
arrivals included 35 companies. This boost will help create more than 800 jobs in the Kingdom
over the course of 3 years across a range of sectors including financial services, logistics,
manufacturing, healthcare, and ICT. Key investors included:
Foreign direct
investment into the
Kingdom has
continued to grow
with a broad sectoral
footprint.
Kintetsu World Express, a Japanese logistics service provider, which established its regional
office at the Bahrain International Investment Park
Chinamex Bahrain is a co-developer (with Diyar Al Muharraq) and operator of the landmark
development Bahrain Dragon City, a large scale trade platform with functions of product
exhibition, retail, and wholesale
Takaud, a specialist savings and pension provider for the MENA region has chosen Bahrain
for its regional headquarters to serve the financial planning and savings needs to both
individual and corporate customers. Takaud is a member of the KIPCO Group
The Swiss private banking group Julius Br established a subsidiary in Bahrain to provide
private banking and wealth management services
CIGNA, one of the worlds largest health services companies, and Saudi Arabian insurance
Company (SAICO) launched the regional headquarters for their new third party claims
management and processing operations
Page 23 of 29
The Bahrain International Investment Park has been one of the leading lights of the Kingdoms
efforts to attract new investment. As of Q1 2014, total number of approvals for investment
projects in the park reached 105. The total value of investments attained BHD687mn and some
10,000 jobs have been created thanks to them.
Money supply growth continues apace

The monetary
conditions in Bahrain
are benign with
steady money supply
growth and a slight
downward tendency
in the cost of capital.
The monetary environment in the Kingdom has remained benign with high liquidity levels and
generally declining interest rates. The broadest measure of money supply, M3, which includes
currency in circulation and all types of deposits, increased by 8.9% between September 2012 and
September 2013 to a total of BHD11.2bn. At the same time, the interest rate environment has
gradually improved. The average interest rate on personal loans charged by conventional retail
banks fell from a peak of 6.13% in March 2013 to 5.84% in September 2013. The average rate on
commercial loans (excluding overdraft facilities) declined even more sharply from a peak of
5.29% in February 2013 to 3.78% in September.
Money supply (BHD mn)
12,000.00
10,000.00
8,000.00
6,000.00
M3
4,000.00
M2
M1
2,000.00
Sep-13
Jul-13
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
0.00
Source: Central Bank of Bahrain
The results of Bahraini banks have shown continued improvement over the past year. The
combined net profits of the three leading conventional retail banks in the Kingdom rose by 45.5%
to BHD315.1mn.
The results of Bahraini
banks have improved
fairly markedly and
consistently in recent
months.
Bahrain Development Bank (BDB) has played a particular role in supporting economic
diversification through loans to small and medium-sized enterprises. The combined value of BDB
loans in 2013 reached BHD44.6mn with SMEs receiving some two-thirds of them. The recipients
included 1,323 companies which created 3,396 new job opportunities with a combined value
added of BHD25mn. Total SME beneficiaries of BDB funding reached 3,861 by December 2013
a total value of BHD111.5mn.
The improving results of the banking sector have coincided with efforts at restructuring through
mergers. 2013 saw four deals, most notably the creation of Ibdar Bank from a merger of three
shariah-compliant investment houses. Al Salam Bank and BMI Bank merged in February to create
Page 24 of 29
the fourth-largest commercial lender in the Kingdom. A merger is also being discussed between
Khaleeji Commercial Bank and Bank Al Khair.
Average rate of interest on credit facilities (conventional retail banks)
8
7
6
5
4
3
2
1
0
Total Business Loans (Excluding overdraft approvals)
Total Personal Loans
A slight pick-up in inflation

Inflation pressures in
recent months have
been driven by
housing and food. The
headline rate is,
however, expected to
remain fairly stable.
Consumer price dynamics in the Kingdom have been relatively flat in recent months. Decembers
reading of the Consumer Price Index saw a slight acceleration to 4.0%, which represented the
fastest rate since July 2012. The pick-up was above all driven by the two main components of the
index food and housing costs. Food prices increased by 5.5% but significant additional
pressures are not expected right now. Housing costs rose at an annual pace of 7%. This has been
the case since September and reflects the ongoing revival of the real estate market. However,
significant additional acceleration is not expected, partly because of spare capacity and new
supply coming on-line. Transportation has of late been one of the sources of deflation but the
negative contribution has diminished to -1.3% from the July reading of -4.8%.
Sector-specific consumer price inflation indicators (YoY %)
20%
10%
0%
-10%
-20%
2011
2012
Nov
Sep
Jul
May
Mar
Jan
Nov
Sep
Jul
May
Mar
Jan
Nov
Sep
Jul
May
Mar
Jan
-30%
2013
Consumer Price Index (CPI)

Food and non alcoholic beverages
Housing, water, electricity, gas and other fuels
Transport
Source: Central Informatics Organisation
Page 25 of 29
Increased capital market activity

Bahrain Bourse has
seen a steady recovery
in recent months, led
above all by the
financial sector.
The Bahraini stock market saw a clear improvement in its performance last year with the main
index advancing by 17.2% during the year as a whole. In terms of market capitalization, the
Bahrain Bourse experienced a 16.6% growth during 2013. This positive growth came as a result
of strong performance across most sectors, with commercial banks making a 40.3% gain in 2013.
The positive momentum has carried over into this year with the market up by 10.3% as of the
end of February.
In a welcome sign of renewed primary activity, Zain Bahrain is expected to launch an IPO by
3Q14. The company is expected to divest 15% of its shares.
Bahrain all-share index (Jan 2012 = 100)
130
120
110
100
90
80
70
2012
2013
Jan
Feb
Dec
Nov
Oct
Sep
Aug
Jul
Jun
Apr
May
Feb
Mar
Jan
Dec
Nov
Oct
Sep
Jul
Aug
Jun
Apr
May
Feb
Mar
Jan
60
2014
Source: Bahrain Bourse
The best performers of Bahrain Bourse during the past year were financial service companies, led
by the Commercial Banks sector index and followed by Investment and Insurance. Also the
Industrial sector has reached double-digit growth. The services sector posted a small decline
while the Hotels and Tourism sub-index was flat.
Sectoral stock market indices
Hotels & Tourism
Industrial
Services
Jan-Feb 2013
Insurance
2013
Investment
Commercial Banks
-10%
0%
10%
20%
30%
40%
50%
Source: Bahrain Bourse
Page 26 of 29
Bond market activity since the beginning of the year has been dominated by the regular flow of
short-term sovereign issuance. Oversubscription levels have been high while the average interest
rate has slightly trended down. In addition, the Bahrain Commercial Facilities Company issued a
USD53.3mn five-year bond in January.
Bahrain short-term bond and sukuk issuance
Date
Issue
12 March 2014
7 March 2014
5 March 2014
26 February 2014
19 February 2014
13 February 2014
12 February
9 February 2014
5 February 2014
27 January 2014
22 January 2014
16 January 2014
15 January 2014
8 January 2014
5 January 2014
1 January 2014
Treasury bill No 1486

Sukuk al salam No 154
Sukuk al ijarah No 102
Sukuk al salam No 153
Sukuk al ijarah No 101
Amount,
BHD mn
45
30
45
36
45
20
45
30
45
45
36
20
45
45
30
45
Maturity,
days
91
182
91
91
91
182
91
182
91
91
91
182
91
91
182
91
Average interest/
profit rate, %
0.74
0.95
0.75
0.80
0.77
1.10
0.80
1.04
0.85
0.91
1.00
1.25
1.00
1.05
1.24
1.06
Average
price, %
99.812
99.524
99.81
99.805
99.799
99.475
99.786
99.770
99.748
99.743
99.376
99.734
Oversubscription, %
182
255
259
325
318
449
248
494
183
240
266
124
313
243
150
150
Unemployment declines
Even though the overall pace of job creation in the economy has diminished in recent months,
the labor market continues to be characterized by a positive momentum. Total private sector
employment grew at an annual pace of 5.2% in Q3. This reflects above all the ongoing rebound in
a number of labor-intensive sectors in the economy.
Total private sector employment growth (excl. domestic workers)
8%
6%
4%
The labor market
conditions have
continued their
gradual improvement
in recent months with
brisk job creation and
a reduction in the
unemployment rate.
2%
0%
-2%
-4%
Q1
Q2
Q3
Q4
Q1
2011
Q2
Q3
Q4
2012
YoY Growth
Q1
Q2
Q3
2013
QoQ Growth
Source: Social Insurance Organization
Page 27 of 29
Reflecting a cyclical improvement in labor market conditions, the official unemployment rate has
continued its downtrend with a decline from 4.5% in November to 4.3% in December.
Unemployment rate (%)
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2011
2012
Nov
Sep
Jul
May
Mar
Jan
Nov
Sep
Jul
May
Mar
Jan
Nov
Sep
Jul
May
Mar
Jan
2.0%
2013
Source: Ministry of Labor
The number of vacancies in the Ministry of Labors vacancy bank has generally trended down in
recent months, although the latest data points to some stabilization.
Number of vacancies reported by the Ministry of Labor
12,000
10,000
8,000
6,000
4,000
2,000
2011
2012
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
2013
Source: Ministry of Labor
Favorable external assessments

Bahrains favourable business conditions and strong economic fundamentals have been
endorsed by the Heritage Foundations 2014 Index of Economic Freedom, which saw the
Kingdom ranked first in the Middle East and North Africa.
The ICD-Thomson Reuters Islamic Finance Development Indicator (IFDI) highlighted Bahrains
developed Islamic finance sector, ranking first in the Middle East and North African (MENA)
region, with total assets worth USD 47bn.
Page 28 of 29
DISCLAIMER
Copyright 2014 by the Bahrain Economic Development Board.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical, photocopying, or otherwise
without the prior permission of the Bahrain Economic Development Board.
CONTACT
Bahrain Economic Development Board
7th, 8th, 12th, 13th and 16th floor
Seef Tower
P.O. Box 11299
Manama
Bahrain
T: +973 17589962
Email: economic.quarterly@bahrainedb.com
Page 29 of 29

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Bahrain Economic Quarterly

BAHRAIN ECONOMIC QUARTERLY | March 2014

THE NON-OIL ECONOMY COMES TO THE FORE

THE GCC REGION

Source: Bahrain Economic Development Board

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

SIGNS OF RECOVERY IN THE WEST

Source: International Monetary Fund, World Economic Outlook, October 2013

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

Tapering gets underway

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

Source: Standard & Poors

Europe emerges from the crisis

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

Shifting fortunes of emerging markets

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

Relative stability for oil prices

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

Global oil prices have

Crude oil prices (USD/barrel)

Europe brent spot

Source: US Energy Information Administration

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

Global oil demand and supply dynamics (mbd)

Implications for Bahrain

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

THE GCC REGION

NON-OIL ACTIVITY TO DRIVE GROWTH

An outlook of continuity for non-oil growth

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

50 =no change on previous month

Source: HSBC, SABB

The non-oil sectors will continue to drive growth

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

A real estate rebound

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

Continued moves toward fiscal consolidation

Hydrocarbons production under renewed downward pressure

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

Monthly oil production by the leading GCC producers (000 b/d)

Source: Joint Organisations Data Initiative

Relative price stability set to continue

Source: National statistical offices

Please refer to the disclaimer at the end of the document.

BAHRAIN ECONOMIC QUARTERLY| March 2014

Bank credit cycle showing signs of turning

Credit growth rates

Source: National central banks