Dallas, TX -- (SBWire) -- 12/05/2011 --The combination of ongoing political tensions and a weak economic outlook is taking its toll on consumer confidence in Bahrain, and on the country’s food and drink sector. The latest data from Bahrain’s statistical agency has confirmed our view that growth would slow sharply in 2011, with real GDP expanding only 0.7% y-o-y in Q2. This marked the sixth consecutive quarter that growth has slowed in year-on-year terms, and we see real GDP expanding by only 0.5% and 1.2% in 2011 and 2012 respectively. Heading into 2012, the deteriorating outlook for the global economy will also weigh on Bahrain’s growth prospects. In the near term, growth will be supported by a combination of fiscal stimulus and external assistance from key regional allies such as Saudi Arabia.

Due to the above factors, our outlook on household spending heading into 2012 remains downbeat. With credit growth having already showed signs of slowing through the first half of 2011 as risk aversion spiked amidst unprecedented anti-government demonstrations, the Bahraini consumer is likely to retrench over the coming months, with major purchasing decisions delayed until more clarity on the political crisis emerges. Meanwhile, public expenditure is set to increase significantly in 2011 and 2012, as Manama attempts to quell the possibility of further anti-government demonstrations with pledges of new spending measures. Since the start of the year there has been a drastic increase in promises of cash handouts, increased subsidies, and new employment opportunities.

Headline Industry Data
2011 food consumption growth= +15.9%; forecast to 2016= +16.7%
2011 soft drink value sales = +12.0%; forecast to 2016 = +13.2%
2011 mass grocery retail sales = +21.1%; forecast to 2016 = +25.0%

Key Company Trends
Géant Plans Regional Expansions: In September 2011 French hypermarket chain Géant, operated by the retail giant Casino, announced plans for a major expansion throughout the Middle East. According to Arif Shaikh, managing director of Géant’s operations in the Middle East, the company plans to open five hypermarkets and 30 smaller stores over the next three years in Bahrain, Kuwait and the UAE, its key Gulf markets. Within two years, the company is also planning on entering Qatar and Oman. He went on to say that Géant has embarked on an aggressive expansion plan since the financial crisis brought down real estate prices throughout the region.

Al Rawabi Moving Into Bahrain: In September 2011 it was reported that UAE-based dairy producer Al Rawabi Dairy Company has plans for a US$200mn expansion programme to widen operations in the Gulf. According to AME Info, the firm wants to replicate its successful business model in Bahrain and Kuwait. Al Rawabi has experienced significant growth over the past two decades and is now one of the leading dairy companies in the region, with over a third of its domestic market. The company is known for the strength of its brand name and reputation for quality, and could pose major competition to domestic dairy companies in Bahrain.

Key Risks To Outlook

Long-term Impact Of Current Crisis: Should the government fail to address some of the protestors’ main grievances, Bahrain’s political crisis could rumble on for longer than expected, with risks of the opposition becoming radicalised increasing by the day. It also remains unclear what impact this current 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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