We have revised down, for the third consecutive month, our growth forecast for 2011 to 2% from 2.4%, owing to severe disruptions in output as a result of the civil disturbances in Tunisia. Our downward revision is based on the assumption that, encouraged by the outcome of the protests, which led to the fall of the Tunisian president, workers will continue to strike to demand better working conditions and the removal of more members of the old regime from within their companies. We estimate that real GDP grew by 3.4% in 2010, reflecting stronger EU demand for Tunisian products. However, import growth outpaced export growth as Tunisia imported large amounts of cereal to supplement weak agricultural output, owing to a shortage of rainfall. We forecast that growth will rebound strongly from 2012 onwards, averaging 3.7% in 2012-15, on the assumption that political and social stability is restored.

The new government will maintain high spending growth to stimulate the economy but will be constrained by limited revenue. It will seek to boost investment. Capital spending will increase, especially in the interior, the south and the west of the country, over the forecast period, as the government strives to even out development across the country. Provided that stability is restored, domestic private investment will expand more rapidly, now that Mr Ben Ali is no longer in command. FDI will also remain an important driver of growth.

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