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Tunisia Business Forecast Report Q2 2014

  • February 2014
  • -
  • Business Monitor International
  • -
  • 29 pages

Core Views

The National Constituent Assembly (NCA) – the country’s legislature – adopted a new constitution in January 2014, the first since the ousting of former President Zine el-Abidine Ben Ali in January 2011. In addition, the NCA approved on January 28 a largely technocratic cabinet lead by former industry minister Mehdi Jomaa, which is tasked with running the country until presidential and parliamentary elections – whose dates are yet to be designated – take place. Despite such progress, obstacles to the political transition, particularly with running the vote, will remain significant over the coming quarters. We see moderate growth in Tunisia in 2014. Ongoing political instability is likely to limit direct investment and tourist arrivals. Growth will accelerate from 2015 onward.

Major Forecast Changes

We forecast CPI to average 6.2% in 2014, from our previous forecast of 6.4% in 2013. That said, price pressures will remain significant, and we project the central bank to hike the policy rate by 25 basis points to 4.75% by end-2014. Given accelerating growth of the economy in 2015, we believe that the BCT will maintain a relatively hawkish monetary policy stance, as it seeks to stabilise the headline inflation print below the 5.0% level which it considers to be tolerable. We forecast interest rates to increase by 25 basis points to 5.00% by end-2015.

Key Risks To Outlook

An intensification of popular protests or political gridlock could result in setbacks for the political transition.
Political unrest in large oil-producing countries such as Iraq could cause a spike in global energy prices, leading to downside risk to our growth forecasts and upside risk to our fiscal deficit forecasts.

Table Of Contents

Tunisia Business Forecast Report Q2 2014
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic politics 8
Positive Progress In Transition To Democracy 8
The recent approval of Tunisia's constitution and the appointment of a new cabinet are significant developments in the North African
country's transition to democracy. In light of this we have revised up our short-term political risk rating.
table: Political Overview 8
Long-Term Political Outlook 9
Political Challenges For The Coming Decade: A Brighter Future? 9
Tunisia's political transition in 2014 will have a profound impact on the country's long-term political and economic future. While there are
significant risks to be addressed, we are optimistic regarding the country's ability to evolve into a stable democracy, boding well for longterm
economic growth.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Growth Accelerating Gradually In 2014 14
We forecast real GDP growth in Tunisia coming in at 3.4% and 4.5% in 2014 and 2015, respectively. A gradual improvement in political
stability and the ameliorating macroeconomic picture in export markets will drive the acceleration in growth over the coming quarters.
We are relatively optimistic over the medium-term trajectory of the country, and project real GDP growth averaging 4.7% over the 2014-
18 period.
Fiscal Policy 16
Budget Deficit Narrowing In 2014 16
Although Tunisia's government will implement some austerity policies in 2014, reform will not be radical, while domestic revenues will
increase at a modest pace. We forecast the fiscal budget to come into deficit of 7.2% of GDP in 2014 and 6.1% in 2015, from a shortfall
of 7.8% of GDP in 2013.
Monetary policy 17
Rate Hikes Likely In 2014 And 2015 17
Following the Central bank of Tunisia's recent 50 basis points hike to interest rates to 4.50%, we see further increases to the policy rate
over the coming years. We project benchmark interest rates coming in at 4.75% and 5.00% by end-2014 and end-2015, respectively.
Investment Climate 19
Further Downgrades Unlikely For Now 19
Moody's Investors Service downgraded Tunisia's issuer rating by one notch to Ba3 on November 25. Further cuts to Tunisia's sovereign
risk by rating agencies are off the card as a result, with potential for upward revisions over the coming quarters.
table: Tunisia's Credit Risk - BMI's Track Record 19
Chapter 3: 10-Year Forecast 21
The Tunisian Economy to 2023 21
Human Capital To Support Long-Term Growth 21
While social unrest is sure to weigh on Tunisia's growth prospects, we expect the economy to bounce back over the medium to long
term, as the country slowly returns to political stability. The country's relatively favourable business environment, along with high human
capital development, will attract significant levels of foreign investment, which will help drive private consumption growth.
table: Long-Term Macroeconomic Forecasts 21
table: Middle of the Road in MENA, Leading North Africa: Tunisia - Selected Business Environment Factors .. 22
Chapter 4: Business Environment 25
SWOT Analysis 25
BMI Business Environment Risk Ratings 25
Chapter 5: BMI Global Assumptions 27
Global Outlook 27
Fairly Benign Prognosis... With Risks 27
Table: Global Assumptions 27
Table: Developed States, Real GDP GrowtH, % 28
Table: Emerging Markets, Real GDP Growth, % 29

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