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Algeria¡¯s Economic Outlook- October 2016

In the first half of 2016, Algeria¡¯s economy grew at 3.6% compared to 3.9% in 2015. The sharp drop in oil prices were compensated by an increase in hydrocarbon production and a high level of public spending. Inflation and unemployment rose and double-digit fiscal and external current deficit deepened. Over the next two-three years, growth is expected to decelerate as the government implements fiscal consolidation measures.

Outlook

Real GDP growth is expected to slow at 3.6% in 2016 and to ease further to 2.6% in 2018. In 2017 and 2018, a substantial increase in hydrocarbon output, as new oil wells start to produce, will mitigate the negative effect of the projected oil price decline on the real non-oil sectors. High unemployment is expected to weigh on household spending. The baseline assumes that the government will make some progress viz. fiscal consolidation. Still, fiscal deficit is expected to remain large at about 13.2% of GDP in 2016 (albeit gradually, narrowing to 8.0% in 2018) as low oil prices weigh on fiscal receipts. With fiscal savings (Fonds de R¨¦gulation des Recettes, FRR) depleted, the deficit is expected to be financed by the issuance of new debts with the debt-to-GDP ratio projected to rise from 13.6% of GDP in 2016 to 25.1% in 2018. The current account deficit is projected to slightly narrow from 15.5% of GDP in 2016 to 10.4% in 2018.

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