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 (the report 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. The report 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.

The report 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.