Economic growth in Lebanon is closely correlated with growth across the Middle East and North Africa, which is forecast to average of 4.3% a year in 2011-12. Although this is lower than the region's annual average growth rate of 5.8% in 2005-08, it is reasonably strong in comparison with other regions recovering from the global recession, in part because of strong oil prices, which are projected to average US$82/barrel (for Brent Blend) over the forecast period. After a period of strong tourism-driven growth, we forecast that real GDP growth will ease slightly to a still-respectable average of 6% in 2011-12, underpinned by investment in construction and demand in the region for Lebanon's services exports (which account for more than half of GDP). Much of the tourism boom and its knock-on benefits have been focused on the Greater Beirut area, and infrastructure constraints need to be overcome if this is to be extended more widely. The economic impact of political instability or violence could be severe, as was witnessed in 2006 when the economy grew by only 0.6%. Domestic private consumption and investment growth will be constrained by the cost of credit, and government consumption growth will remain positive but will be curbed by the need to contain the already large fiscal deficit.

Tourism, banking and construction will remain the key drivers of growth. A strong performance in these sectors is the main reason why the economy expanded by 7.5% in 2010. Tourist arrivals increased by 64% year on year in 2009, to 1.9m, and it's clear from data to date that 2010 was also another year of strong growth. Tourism indirectly supports about one-quarter of jobs and generates much of the demand that supports the booming construction sector. Banking is vital to the economy and has also been protected by strong inflows of deposits and interest income from government debt. There are questions about the quality of official GDP data, and timely economic indicators outside the three key sectors are in short supply.