After strengthening in 2010 on the back of newly commissioned gas export capacity, real GDP growth is expected to revert to a more modest pace over the forecast period. In large part, this reflects further falls in oil output and the harmful effect on private consumption of growing political instability and of the reduction in the fuel subsidy. Domestic demand will also be hit by problems in the agricultural sector-the country's largest employer-where persistent groundwater shortages look set to get worse. Investment will recover, however, although it will stay relatively weak, after work ended on the LNG facilities in 2010.

Assuming aid disbursements pick up relatively rapidly from their current level, we expect a number of infrastructure projects, such as roadbuilding and school construction, to proceed. Furthermore, rebuilding in eastern Yemen, after serious floods in October 2008, will also support investment, as might reconstruction funds pledged by Qatar for the war-torn Saada region. Nevertheless, we forecast that real GDP growth will fall from an estimated 6.2% in 2010 to an average of below 3% in 2011-12-insufficient to prevent increasing economic hardship.