We have revised down our growth forecast for 2011 to 0.8% in line with projections made by the Tunisian government-official forecasts for growth in 2011 range from 0% to 1%. Our revision is based on an expected 50% decline in tourism revenue this year as well as a substantial fall in foreign investment. In spite of strong foreign trade figures for the first two months of 2011, we forecast that exports will fall by more than 10% this year. The exports in January and February are misleading as they reflect goods already manufactured and in the export pipeline, which explains the discrepancy between the data for industrial output-which has fallen across all major sectors-and exports. 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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