Business rebound in Bahrain seems still far-off in the early part of Q3, although this was not entirely unexpected given that the combination of summer and Ramadan, are typically associated with a market slowdown, CB Richard Ellis study showed Sunday. However, as Q3 drew to a close, market activity levels picked up as the business community geared up to finish the year on a positive note. Business Monitor International (BMI) announced that the Bahrain economy expanded by only 0.7 percent in the year to the end of Q2 2011, with second quarter performance markedly up on the dismal Q1 during which the economy actually contracted by 1.4 percent. BMI forecasts place Bahrain's real GDP expansion to be 0.5 percent in 2011 and 1.2 percent in 2012, while an analyst's poll by Reuters forecast GDP growth at 3.2 percent for 2012. Although the political crisis did dampen the country's short-term economic outlook, the government's firm stance in pushing through reforms is likely to limit the prolonged effects. In July, Bahrain was removed from "Credit Watch Negative" by Standard & Poor's which cited "the diminished near term political tensions and our expectation that increased public spending will lift economic growth next year." Infrastructure projects worth BD14 million were awarded in July and August, including projects for roads, electromechanical maintenance and pumping and sanitary works at 30 schools. However, this and other economic stimuli such as a $1 billion increase in spending on public wages resulted in a 22 percent jump in spending and a deficit of around 10 percent of GDP. The tourism sector in Bahrain has been especially hard hit and in addition to weak occupancy and rate conditions in the kingdom's hotels, cruise liners have also dropped the kingdom from their itineraries in the short term. In the residential sector, theSaar/Budaiya areas which have historically been the preferred residential choice for upper-income expatriate families living in compounds. Consequently, on expiration of their existing leases, many expatriate families are opting to move to emerging areas that offer close proximity to schools and good access to both Saudi Arabia and central Manama. Some compounds are consequently descending into a spiral of decline while others are taking the opportunity to comprehensively refurbish both the villas and common areas in anticipation of a market upturn. Although average compound rents fell by 10-15 percent in the Saar and Budaiya areas during Q3, demand at the top end of the market, where budgets are BD2,000+/month, stayed strong as new employees to the Kingdom, particularly those in the oil and gas sector have higher housing allowances. There has also been an upturn in demand for compound accommodation in western Bahrain.
