We estimate that real GDP growth reached 4% in 2010, as strong government spending and private consumption supported the economy. The decline in oil production seems to have been at least temporarily reversed, and we forecast growth of 4.6% in 2011 and 2012. Growth will be driven by rising foreign investment as the economy is opened up. This, combined with a government focus on capital spending, will drive growth in fixed investment, although the rate of expansion in government consumption and capital expenditure will slow during 2011-12. Private consumption growth will pick up as the private sector expands and an expected recovery in agriculture in 2011 boosts incomes. However, if there were a significant improvement in security in Iraq a sizeable number of the Iraqi refugees in Syria (estimated at between 500,000 and 1m) might return home, depressing consumption. Growth in trade will also pick up in 2011-12 as Syria becomes more integrated into the global economy. The instability that has affected countries in North Africa could possibly spread to Syria, hindering economic activity (at least temporarily).

On the sectoral side, a poor harvest in 2010 has held back agriculture, with cotton production down by 25%. Although there should be some recovery in 2011-12, water shortages will remain a risk. A government investment drive will boost industry, construction, transport and electricity generation. This will be augmented by investment in the oil and gas sector, which will help to limit declining output in mature fields and boost production in new fields. There will also be a substantial increase in cement production in 2011. Securing finance for some investment projects may be difficult, especially in commercial real estate where there are concerns about overheating. Services will continue to grow, driven largely by a strong increase in tourist arrivals.