Outlook for 2011-12

• Despite the threat of contagion from Tunisia and Egypt, the president, Bashar al-Assad, is expected to remain in power in 2011-12. Some limited domestic political reform is expected.
• Syria's domestic economic and political profile is similar to that of Tunisia and Egypt, but there are also major differences. Syria's posture of resistance lends the regime some legitimacy, and fears of sectarian conflict will deter dissent.
• The rapprochement with the US and leading Arab states will be tested by the collapse of the Saudi-Syrian deal to shore up political stability in Lebanon.
• Syrian real GDP growth was an estimated 4% in 2010. We forecast that this will accelerate to an average of 4.6% in 2011-12, driven mainly by private investment in industry, construction, transport and electricity generation.
• The liberalisation, privatisation and diversification of the centrally planned economy will continue, despite opposition within the regime.
• The central government runs a persistent budget deficit, which is expected to average 2.3% of GDP in 2011-12, lower than previously forecast.
• We have raised our forecast for inflation, and expect it to average 7.2% in 2011 as global commodity prices increase, but to fall to 2.4% in 2012 owing to the deflationary effect on rents of Iraqis returning home and a helpful base effect.

Monthly review

• The deal between Syria and Saudi Arabia to shore up political stability in Lebanon has collapsed, after the Lebanese parties failed to agree to marginalise the UN-mandated tribunal into the murder of Rafiq Hariri.
• The "March 8th" bloc has withdrawn from the Lebanese national unity government, prompting its collapse. The nomination of Najib Miqati, who is close to Syria, as prime minister has been greeted by violent Sunni protests.
• Robert Ford has taken up his post as US ambassador to Syria, marking a return to top-level US diplomatic representation after almost six years.
• The government has increased heating fuel (diesel) allowances for state employees and approved means-tested cash benefits to mitigate the effects of increased commodity prices.
• The Credit and Monetary Council has lowered interest rates.
• The consumer price index rose in the final quarter of 2010, driven by a sharp increase in the food and beverages index.
• Egypt-based EFG Hermes, one of the region's largest investment banks, has attracted strong support for a Syria-focused private-equity fund.