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RIYADH (Reuters) – Bahrain’s gross domestic product grew 6.9% year-on-year in the second quarter of 2022, posting the largest annual increase since 2011, Bahrain’s Crown Prince Salman bin Hamad Al-Bahrain said on Twitter on Sunday. Khalifa.

In the first quarter, the Gulf country’s GDP rose 5.5% year-on-year at constant prices. The country’s non-oil economy grew by 7.8% over the same period.

According to the latest Economic Insight report for the Middle East, commissioned by ICAEW and compiled by Oxford Economics, growth in Bahrain’s oil sector will be driven by higher oil production, despite a decline in the first quarter. Since 2015, the annual real growth of Bahrain’s oil sector has increased only once compared to the previous year, in 2019. Based on the current OPEC+ agreement, Bahrain will see a modest increase oil production in 2022 at 0.19 million barrels per day versus 0.17 million bpd.

This slight increase, combined with high prices, will bring the oil sector back to growth in 2022 before stagnating again as the government continues its diversification efforts. Oil production is forecast to increase by 5.8% in 2022, compared to 2.4% in 2021.

Scott Livermore, ICAEW Economic Advisor and Chief Economist and Managing Director of Oxford Economics Middle East, said: “Soaring oil prices and the introduction of a 10% VAT are supporting Bahrain’s incomes and will help the authorities move closer to a balanced budget in 2022. , two years earlier than the 2024 target set in the balanced budget programme.

Rising inflationary pressures and rate hikes by the US Fed will force the Central Bank of Bahrain to further rate hikes, beyond the cumulative 225 basis point increase in the policy rate already this year.

Inflation averaged 3.4% in the first half of this year, a level not seen since 2016, before climbing to 3.9% in July.

The ICAEW expects inflation to average 3.9% this year after prices fall annually in 2020 and 2021.

Consumer spending is expected to be increasingly constrained by 2023, which will cause GDP growth to slow to less than 2% by 2024.

At present, the central bank has sufficient reserves to maintain its currency’s peg to the US dollar and is expected to closely monitor Fed policy decisions, so it should not come under significant pressure to devalue. the dinar.

The current account returned to surplus in 2021 at 6.7% of GDP, the largest surplus since 2013. The ICAEW expects the rising price of oil exports and a continued recovery in international travel to push this surplus above 10% in 2022.