Inflation will also rise as economic reforms are introduced
The Washington-based IMF expects Bahrains real GDP growth to 2.25 per cent in 2016, with inflation rising to about 3 per cent.
The forecast was made after an IMF mission visited Manama from 12-25 January for discussions on the 2016 Article IV consultation.
New economic reforms introduced by Manama will be a drag on the economy in 2016.
In early 2016, authorities announced significant fiscal measures to strengthen revenues, including increases in retail prices of fuel products, electricity and water, said Padamja Khandelwal who led the IMF mission. As a result of weakening confidence, and reflecting the dampening effect of the necessary fiscal measures on aggregate demand, real GDP growth is projected to slow further in 2016, to 2.25 per cent, and inflation is expected to rise to around 3 per cent
Economic growth also slowed to 3.2 per cent during 2015, a decline on the 4.5 per cent growth registered in 2014.