Algeria’s Economic Outlook- April 2017

A strong recovery in hydrocarbon production and higher-than-expected public spending kept growth relatively buoyant in 2016 at 3.8%, despite low global oil prices. However, non-hydrocarbon growth decelerated, while inflation rose. Double-digit twin deficits remained, depleting fiscal savings. In the medium term, growth and the twin deficits are expected to decline sharply as the government implements fiscal consolidation. The resulting contraction in GDP per capita growth may negatively impact house-holds’ welfare.

The Algerian economy is expected to slow down in the medium term. Real GDP growth is expected to average 1.2% in 2017-2019. The downward revision of growth projections compared to the Fall 2016 projections is due to the announced fiscal consolidation and a moderation of hydrocarbon production growth. In 2017- 19, a modest 2.5% increase in hydro-carbon production resulting from the start of production in new oil wells and a positive correction in oil prices will mitigate the negative effect of fiscal and current account consolidation on the real non-oil sectors. Continued lower levels of oil prices (albeit with some positive correction) and sluggish household demand due to high levels of unemployment and/or inactivity will help keep a lid on inflation. The fiscal deficit is estimated to further decline to below 5% in 2017 and one percent by 2019, if the government maintains tight control over spending.