Bahrain’s economic growth will slow in 2014 as a result of lower oil prices, according to a new report from National Bank of Kuwait (NBK).

In its July macroeconomic report on the kingdom, NBK also warns that Bahrain’s budget deficit will rise in both 2014 and 2015 as a result of a projected fall in oil prices.

The slowdown in growth in Bahrain’s economic output comes after a strong recovery in macroeconic growth in 2013.

“Economic growth continued to climb in 2013, when a steep recovery in oil production offset the slowdown in non-oil sector growth,” said the NBK report. “Overall, real GDP rose by 5.3 per cent year-on-year in 2013, its fastest pace in four years. However, growth is expected to slow to 2.8 per cent year-on-year in 2014, as oil sector growth undergoes a major correction and non-oil sector growth remains relatively weak.”

NBK said headline inflation is expected to slow from an annual average of 3.2 per cent year-on-year in 2013 to 2.5 per cent year-on-year in 2014.

“The budget deficit almost doubled to $1.1bn in 2013, to 3.3 per cent of GDP, even as spending rose at its slowest rate since 2009,” NBK said. “The budget deficit is expected to widen to around 5 per cent over the next two years, as current expenditures continue to rise and softening oil prices drive revenues lower.”

Bahrain’s current-account surplus rose to 7.8 per cent of GDP in 2013, according to the bank

“In spite of a gradually recovering non-oil export sector, lower oil prices are expected to drive the surplus to a slightly lower, but still healthy, 6 per cent of GDP over this year and the next,” it said.

The consensus among oil market analysts is that oil prices are expected to fall towards $100 a barrel on average in 2014 due to increased Opec and non-Opec production.