September 29, 2011
Iraq: Country Economic Forecast
Oil output remains around 2.7m b/d and should rise by over 15% in 2011 overall. And with oil prices surging by almost 40% this year, oil revenues are booming, in turn driving heavy state spending. GDP growth is still seen accelerating sharply to about 10% this year from just 1% in 2010.
Ambitious official projections for oil output are being revised lower, with government now talking of 8m b/d by 2017 rather than 12m b/d. But further rises in output, to about 2.9m b/d in 2012 and 3.1m b/d in 2013, will underpin solid growth in the next few years, albeit slowing from this year's pace. State spending on construction and infrastructure will remain high, but security concerns, persistent electricity shortages, banking sector weaknesses, legal uncertainties and a lack of foreign investor confidence will continue to hamper the revival of private sector activity.
Core inflation has risen this year, to 7.6% in August from 3.3% at end 2010, but this largely reflects higher energy and food costs. We expect the rate to ease back in the coming months and to average around 6% both this year and in 2012. A small current account surplus is expected this year as exports rise by over 45%, driven by higher oil output and the forecast 39% rise in the average world oil price. But lower oil prices and higher imports may bring a return to deficit in 2012. Strong revenues could also yield a small budget surplus this year, as spending falls behind schedule.
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