The International Monetary Fund (IMF) released its latest World Economic Outlook in which it revised slightly downward its forecast for 2012 from 3.5% in the previous edition to 3.0% in the current one.
While this year’s outlook hinges on developments in the external environment, the real growth rates of 2012 and 2011 reflect a slow down from a four-year period of significant economic growth. Yet, the growth rate forecasted for 2012, exceeds that of 2011, supported by a recovery in tourism and retail trade buoyed by an improved domestic environment and continued growth in the GCC countries. Planned increases in public investment, including a large-scale project in the electricity sector, could provide an additional boost.
According to the IMF, downside risks are high, mainly from the uprising in Syria, further escalation of which could have serious repercussions on several economic indicators which were already during 2011 weaker than previous years characterized by buoyant activity.
As to the inflation rate, the Fund suggests that on average consumer prices in the country expanded by 5.0% in 2011, and would rise by 4.0% in 2012. Inflation has risen since mid-2010, though the halving of the fuel excise in February 2011 dampened the inflationary impact of higher oil prices. In fact, headline inflation will stay elevated mainly because of wage increases and a possible VAT rate hike.
Finally, the current account deficit is estimated to have reached 14.4% of GDP in 2011 versus against 10.8% of GDP in 2010. Despite weaker import demand in 2011, the current account deficit widened on the back of higher food and fuel prices coupled with a drop in tourism activity. In 2012, the current account deficit is likely to remain practically at the same level as that of 2011 with the rebound in exports expected to be largely offset by higher imports.