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 real GDP will grow by a mere 0.8% in 2011, slightly lower than the projections of 1-2% made by the Tunisian government. Our revision is based on a substantial decline in industrial output, which fell by 9.4% in the first quarter of 2011, compared with the same period of 2010. We forecast that growth will rebound strongly from 2012 onwards, averaging 3.7% a year 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 in the latter part of the forecast period.

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