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Iraq Business Forecast Report Q3 2014

  • May 2014
  • -
  • Business Monitor International
  • -
  • 36 pages

Core Views

Despite the formation of a government in December 2010, we expect political progress to remain slow and stability fragile. A broken power-sharing agreement and persistent sectarian tensions present key risks.The Iraqi economy will be among the fastest growing in the world over the coming five years, driven by an aggressive increase in oil
production and the start of large-scale infrastructure projects.

Major Forecast Changes

We have revised up our forecasts for real GDP growth, and project the economy to expand by 9.0% and 9.4% in 2014 and 2015, respectively, compared to our previous forecasts of 10.9% this year in 2014 and 10.8% next year. Despite high political risks, elevated fiscal spending and the beginning of several projects in the oil sector will ensure that the economy remains the fastest growing in the Middle East and North Africa (MENA) region in 2014.

Table Of Contents

Iraq Business Forecast Report Q3 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
Election Primer: Vote Unlikely To Foster Fundamental Change 8
We expect a protracted period of coalition building following Iraq's parliamentary elections which took place on April 30. This will
contribute to elevated political instability this year, with the approval of the 2014 budget set to be further delayed.
TABLE: Political Overview .8
TABLE: Main Political Blocs .9
tABLE: General Election: Bottom Line ..10
Long-Term Political Outlook .. 11
Multiple Challenges To Stability Over The Coming Decade 11
Iraq faces multiple challenges to its stability over the coming decade, and we do not preclude a return to authoritarian rule, renewed
sectarian conflict or the break-up of the state. The key to maintaining stability is ensuring that Iraq's separate ethnic groups' interests are
protected by the federal government.
Chapter 2: Economic Outlook . 15
SWOT Analysis 15
BMI Economic Risk Ratings 15
Economic Activity . 16
Robust Growth Despite Security Risks 16
We project real GDP growth in Iraq to reach 9.0% and 9.4% in 2014 and 2015, respectively. Accelerating oil exports and elevated fiscal
spending will ensure that the economy will be the fastest growing in the MENA region in 2014. That said, risks to the outlook for 2014
and beyond are firmly to the downside, a result of elevated political instability.
TABLE: Economic Activity .16
Monetary Policy .. 18
Inflation Increasing Gradually In 2014 ..18
We expect the headline inflation in Iraq to trend higher over the coming months. That said, lower-than expected readings in Q114 have
led us to revise our 2014 CPI forecast down. We project CPI averaging 3.5% in 2014, compared to our previous estimate of 4.0%, and
5.0% in 2015.
TABLE: Monetary Policy 19
Regional Economic Outlook .. 20
Iraqi Kurdistan: Construction Over Energy ..20
The Iraqi semi-autonomous Kurdistan region will out shine the rest of the country in terms of investment potential over the next few
years. The construction sector will outperform the energy industry, as the ongoing dispute over oil revenues with Baghdad increases
risks for oil companies.
TABLE: KRG - Key Projects ..20
Chapter 3: 10-Year Forecast . 23
The Iraqi Economy To 2023 . 23
Continued Growth Dependent On Maintaining Stability 23
Our 10-year macroeconomic forecasts are based on the expectation that Iraq will become an increasingly stable polity, setting the
foundation for average real GDP growth of 7.5% between 2014 and 2023. The oil and gas sector will continue to be the lifeblood of the
economy over this time frame.
table: Long-Term Macroeconomic Forecasts .23
Chapter 4: Business Environment 27
SWOT Analysis 27
BMI Business Environment Risk Ratings .. 27
Business Environment Outlook 28
Institutions . 28
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS 28
TABLE: BMI LEGAL FRAMEWORK RATING .29
Infrastructure 30
TABLE: LABOUR FORCE QUALITY ..30
Market Orientation . 31
TABLE: MENA - ANNUAL FDI INFLOWS 31
TABLE: TRADE AND INVESTMENT RATINGS 32
Operational Risk . 33
Table: Top export destinations .33
Chapter 5: BMI Global Assumptions .. 35
Global Outlook . 35
Growth Increasingly Polarised ..35
Table: Global Assumptions ..35
Table: Developed States, Real GDP GrowtH, % 36
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % .. 36
Table: Emerging Markets, Real GDP Growth, % ..37

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