Abstract
From Q309 through to early 2010, the Bahrain autos market will remain subdued.
Its fate is still largely
dependent on how fast and in what shape the
global economy pulls itself out recession. The economy is
still undergoing
negative growth (BMI maintains its forecast of a 0.5% drop in GDP in 2009).
Although
the effects of the slowdown are less pronounced than with some of
its neighbours, Bahrain’s fortunes are
inextricably linked to global
dynamics, mainly via oil and gas prices. This is only partially mitigated
by
its relatively strong banking sector and good levels of liquidity,
which should temper the more extreme
possible effects of the crisis on
lending. BMI retains its forecast for autos sales growth of 3.4% in volume
terms to 46,150 units in 2009.
While the Kingdom has a relatively
transparent regulatory environment and a tax regime widely seen as
conducive to continued healthy FDI, the key question remains one of confidence
and uncertainty
surrounding the oil price and thus secondary effects in
terms of disposable income.
The development of the Bahraini automotive
market will be determined by the availability and cost of
credit, with
inflation, among other key and interrelated macroeconomic and monetary policy
factors,
playing a key role. Inflation slowed sharply to 3.1% y-o-y in
April from 4.3% y-o-y in March and is
projected to decelerate further in
the near term to an average of 1.5% y-o-y this year. The central bank has
said it has no plans to ease monetary policy in the near future, unlike Kuwait
and Saudi Arabia, both of
which cut rates in Q209.
BMI also expects to
see an intensification of existing consumer trends, in particular the ongoing
shift
from a dependence on expatriate consumption to more domestic-based
spending, and lending, on cars.
The market is not expected to recover as
rapidly as the United Arab Emirates (UAE)’s. This is due to the
relatively small capacity of the Bahraini road system which is nearly at full
potential, although this may
be offset to some extent by the frequent
replacement of cars.
For the time being, zero-interest loans and other
factors should continue to make the Kingdom a regional
centre for growth,
and the authorities are keen to maintain this image. Industry and Commerce
Minister
Hassan Fakhro rejected a parliamentary proposal for the
imposition of income tax on foreign
investment. The Kingdom’s
authorities have also prioritised private investment, in particular in
financial
services.
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