Growth Forecasts Revised Downward
BMI View: We have modestly revised downward Iraq's 2014 and 2015 real GDP growth forecasts. Increasing political instability will result in a marked decline in the expansion of the domestic economy, however robust oil exports will ensure that headline growth remains strong until 2016. We have sharply revised downward our five-year growth forecasts. Consumer spending and capital formation will remain subdued, and hydrocarbon production growth will slow significantly due to a lack of investment.
We have revised down our 2014 and 2015 economic growth forecasts for Iraq, as the takeover by jihadist group Islamic State of Iraq and the Levant (ISIS) and its allies of the country's north and west raises risks of a return to sectarian civil war. We project the economy to expand by 8.6% and 8.2% in real terms in 2014 and 2015 respectively, from our previous forecasts of 9.0% growth this year and 9.4% the next. Consumer spending, government consumption and fixed investment will be hit hard by violence. However, robust energy exports from southern Iraq will avoid a sharper downward revision.
We have also revised downward our five-year growth forecasts. We see real GDP growth expanding by an average of 5.6% over the 2014-2018 period, from our previous forecast of 8.2%. Regardless of whether Iraq remains formally united or breaks up, elevated political risk will lead to a drastic slowdown in economic activity (see 'Rising Risk Of State Collapse - Scenarios Assessed', June 23). Moreover, BMI's Oil & Gas research team revised downward our medium-term oil production forecasts, as investment in the energy segment will be low due to ongoing instability.
|Outlook Significantly Worsened|
|Iraq - Real GDP Growth, % chg|