We estimate that Libyan real GDP expanded by 3.3% in 2010. This is well below potential and suggests that growth is being limited by structural constraints, such as the inefficiency of the bureaucracy. We therefore forecast that real GDP growth will be relatively weak, rising from 3.8% in 2011 to 4% in 2012. Economic growth is primarily determined by oil production and export volumes, and we only expect small increases in demand for Libyan oil. Libya primarily supplies Western, developed nations, where consumption is in decline, and may struggle to open up new supply lines to emerging Asian markets. OPEC quotas will also limit production, and we expect few reforms to be implemented to tackle structural constraints until there is a new leadership in place, which remains unlikely during the forecast period. Furthermore, although development work and new oil exploration will be carried out in an attempt to boost production capacity, these steps are only likely to move forward slowly. We therefore expect growth to decline in 2013-15, when it will average 3.7%. Investment and imports related to oil and gas developments will grow relatively strongly in 2011-15, provided that international oil companies are not significantly deterred by the recent threats to nationalise foreign oil operations or by subsequent regulations that aim to give the Libyan government greater control over the development of the country's hydrocarbons assets.

There is potential for the non-oil sector to grow rapidly, albeit from a low base, supported by government infrastructure investment programmes, particularly in the construction, utilities, communications, transport and financial sectors. There is strong foreign interest in Libyan investment opportunities, and although reform tends to be slow and unpredictable, the government appears committed to encouraging private-sector participation. Moves to raise the proportion of locals in the workforce could stimulate greater private consumption, and strong growth in bank lending to the private sector could help to kick-start private-sector economic activity. However, these factors are not yet having a major impact on overall economic growth.

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