Bahrain economy shrinks as financial sector weighs

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Bahrain's economy shrank 0.3 percent from the previous quarter in the April-June period, its first quarterly drop in a year, largely because of weakness in the financial sector, official data showed.

Gross domestic product, adjusted for inflation, had expanded 2.5 percent quarter-on-quarter in the first three months of 2013. The small non-OPEC oil producer last experienced a quarter-on-quarter contraction in April-June 2012.


On a year-on-year basis, however, GDP growth quickened to 5.3 percent in the second quarter of 2013, the highest rate since the final quarter of 2010, from 4.2 percent in January-March, the data from the Central Informatics Organisation showed.

Limited oil resources have forced the island kingdom of 1.3 million people to rely on other forms of business, particularly finance. But political unrest since 2011, in which the government has clashed with mainly Shi'ite-led pro-democracy protesters, has hurt Bahrain's status as a regional financial hub while increasing pressure on the state budget.

Output in the hydrocarbons sector, which accounts for a quarter of Bahrain's $30 billion economy, grew 1.2 percent in April-June from the previous quarter, after a 1.3 percent rise in the first three months.

On a year-on-year basis, hydrocarbon output jumped 18.6 percent in the second quarter, as last year's drop in crude oil output from Bahrain's key Abu Safa field, which it shares with Saudi Arabia, was corrected.

Meanwhile the financial industry, which accounts for roughly 16 percent of GDP, shrank 1.0 percent quarter-on-quarter in April-June, the first contraction since the second quarter of 2012.

In the hospitality sector, which nosedived during the 2011 turmoil, output climbed 1.7 percent quarter-on-quarter in April-June, accelerating from a 0.5 percent rise in the previous three months.

Analysts polled by Reuters in September forecast that Bahrain's GDP growth would accelerate to 4.0 percent in 2013 from 3.4 percent in 2012, before slowing again to 3.5 percent next year.

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