Inflation-adjusted expansion in gross domestic product deccelerated to 1.3 percent quarter-on-quarter from 2.2 percent in the third quarter of 2011, the statistics office said on Wednesday. On an annual basis, GDP expanded 3.2 percent in the fourth quarter after a 2.9 percent rise in July-September.

Overall, economic growth in the small non-OPEC oil exporter roughly halved to 2.2 percent last year, the worst performance since a 0.3 percent contraction in 1994, when oil prices fell to $13 per barrel. They are currently above $120.

“Given the high oil prices last year, for an oil producer a 2 percent growth is not particularly impressive,” said Gabriel Sterne, a senior economist at Exotix in London.

“That is mainly due to the political tensions that we have seen. Nothing was really resolved to the satisfaction of all parties.”

Last year’s economic growth “is satisfactory in light of current economic challenges and the economic outlook in the near term looks positive”, Central Informatics Organisation president Mohammed al-Amer said as he announced the GDP data.

“Improving local and global indicators are also expected to result in economic stability (and) encourage local and foreign investors to reconsider shelved investment decisions. However, restoration of economic growth rates which were prevalent before the crisis will take some time,” he said.

Hydrocarbon sector

Output growth in the hydrocarbon sector, which accounts for a third of Bahrain’s $26 billion economy, more than halved to 2.4 percent quarter-on-quarter during October-December, the data showed.

The real estate and business activities sector shrank 4.8 percent, a worse performance than it posted during the first quarter of last year. The hotel sector fell 4.8 percent after a 20.8 percent jump in the previous quarter.

If oil prices stay high, however, analysts think Bahrain’s economy may pick up moderately this year because of strong government spending, even if the private sector remains sluggish.

“We are expecting an improvement in growth. We think government spending is going to be a key growth driver in the region and that includes Bahrain,” said Khatija Haque, senior economist at Emirates NBD in Dubai. She has a 3.3 percent GDP growth forecast for Bahrain this year.

Bahrain predicted 2012 government expenditures of 3.1 billion dinars ($8.2 billion) in its two-year budget before the protests broke out. It boosted spending by 22 percent from its original budget target in 2011, but has not revealed changes for 2012 despite announcing public sector wage rises last year.