By Mark A. DeWeaver.
Last month Barcelona-based economics consultancy FocusEconomics launched an interesting new product—a survey of professional forecasters for the Middle East and North Africa (MENA) region. The section on the Iraqi economy is particularly useful given the lack of attention this subject normally receives. It includes consensus projections for 25 macro variables going out to 2019 along with numbers from each contributor for this year and next.
All but two of the ten participants in the Iraq survey expect faster GDP growth this year. The consensus forecast calls for 3.5% growth in 2015, following a mere 0.1% for 2014, with a return to 5%+ growth rates in the 2016-2019 time frame. (See chart.)
This ‘V’-shaped recovery scenario is plausible for three reasons. First, Parliament is now expected to pass a federal government budget for the first time in well over a year. While the recent fall in oil prices has imposed new constraints on spending, restarting projects that had been halted during last year’s budget impasse is bound to provide a significant economic stimulus.
Second, progress in the fight against ISIS is also likely. This will not only have a positive effect on business sentiment but may also help to stimulate domestic and international trade by making truck travel safer on the major highways heading north and west of Baghdad.
Finally, oil exports continue to grow despite the security situation. December shipments reached 2.94 mn barrels per day (bpd), a level last seen in 1980. A further increase to 3.2 mn bpd is expected this year—a 31% increase over the 2014 average of 2.45 mn bpd that will partially mitigate this month’s price collapse.
The FocusEconomics panel’s call for a GDP rebound in 2015 is a good one. Increased government spending, improved security, and higher oil exports should make this a year of recovery for the Iraqi economy.