Boston, MA -- (SBWIRE) -- 07/19/2012 -- Elevated oil prices, an increase in government spending and financial support from Saudi Arabia should help bolster growth though 2012. That said, a weak outlook for the domestic tourism and financial services sectors will ensure that a return to pre-crisis rates of real GDP growth remain off the cards in the near term. While we expect growth to rebound slightly 2012, we stress that the economy's medium-term outlook remains contingent upon a lasting solution being found to the current political crisis. Unfortunately, we maintain our relatively guarded outlook on the prospects that the government and opposition can come to some form of agreement in the near term. As a result, political risks will remain elevated for the foreseeable future. Major Forecast Changes We have revised our balance of payments forecasts on account of a likely moderation in oil prices and weaker services credits. The current account surplus is projected to narrow to 4.4% of GDP in 2012, down from 8.7% in 2011. Bahrain's net international investment position should remain strong, which will ensure that the country's sovereign wealth fund continues its expansion in acquiring overseas assets. Key Risks To Outlook S hould the government fail to address some of the protesters' main grievances, Bahrain's political crisis could rumble on for longer than expected, with risks of the opposition becoming radicalised increasing by the day. A marked drop in oil prices concomitant with a slowdown in growth in Europe, the US and China would pose a significant risk to the country's near-term growth outlook and likely lead to a marked deterioration to the country's balance of payments and fiscal dynamics. I t remains unclear what impact 2011's political crisis will have on Bahrain's long-term economic outlook. Should investors begin to reassess the costs of doing business in the country and begin relocating to Dubai or Doha, Bahrain's growth outlook would suffer accordingly.
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