Tight housing stocks and a rapidly growing population is driving investment into Bahrain’s residential buildings construction sector and this is expected to be a major contributor to headline construction industry growth over the coming decade, according to an expert.

Furthermore, industrial construction, namely the expansion of the Sitra refinery and the Line 6 Expansion Project at Aluminium Bahrain, will boost growth, stated Fitch Solutions Macro Research in its 2019 review for Bahrain.

"We are maintaining our growth forecasts for the Bahrain construction sector for the coming year and beyond. Over 2019, support from regional allies and firmer oil prices will see growth in real terms of 4.6 per cent y-o-y, despite the government's likely reduction in capital expenditure," it stated.

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"Over the longer term, we expect annual average growth of six per cent between 2020 and 2028. By the end of our forecast period in 2028, the Bahrain construction industry will value $6.6 billion, an increase from an estimated $3.2 billion in 2019," it added.

According to Fitch Solutions, the Bahrain government was likely to deepen fiscal consolidation efforts in the 2019 budget, within the context of an upcoming Gulf bailout programme.

"We expect capital expenditure to suffer the most, given that it is less politically sensitive than most recurrent spending. This is likely to weigh on funding availability for construction projects in the country," said Fitch in its review.

Fitch Solutions pointed out that the announcement that Bahraini would be tendering the country’s first metro project in 2019 offered significant upside to its construction sector outlook and mirrors metro project initiatives in other GCC countries.

"We expect that any PPP relating to the development of a metro project will likely be able to draw upon significant sources of domestic and international capital," it added.

However, Fitch Solutions cautioned that Bahrain’s PPP framework was largely untested and, coupled with ongoing macroeconomic uncertainties, may undermine the attractiveness of the project from the perspective of the private sector.

"We expect Bahrain’s economic growth to slow from 2019 onwards as fiscal consolidation reduces government investment flows and weighs on economic confidence. We forecast real GDP growth of 3.4 per cent in 2018 and 2.8 per cent in 2019," it stated.

This will be partially ameliorated by continued Gulf financial support and higher exports. Bahrain’s construction sector will continue to benefit from financial support from the rest of GCC, it added.

Fitch Solutions said it expected continued growth in Bahrain's construction sector over 2018, as inflows from the likes of Saudi Arabia and other regional allies continue to support government investment, and a number of large scale and high profile developments move forwards.

"We note that this growth is unsustainable, however, as lower oil prices and a weak economy see the Bahraini government unable to continue to heavily invest in major projects, and as such as expect growth to moderate beyond 2019," it stated in the review.

While Fitch Solutions expects Bahrain to continue recording large budget deficits over the years ahead, inflows of financial support - most notably from Saudi Arabia via the GCC development fund - would enable the government to continue to finance projects.

The fund aims to provide Bahrain with $7.5 billion in development grants over a 10-year period from 2011 (with $3 billion to $4 billion already allocated).-TradeArabia News Service