publication October 9, 2019

Algeria's Economic Update — October 2019

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GDP growth reached 1.5% in 2018, compared to 1.4% in the previous year, and was sustained at 1.5% in Q1-2019. Growth in the hydrocarbon sector was sluggish, with economic activity contracting by 6.5% and 7.7% in 2018 and Q1-2019, respectively, partially offsetting the slight increase in non-hydrocarbon growth of 3.4% and 3.9% in 2018 and Q1-2019. On the sectoral side, commercial services, industrial, construction and public works, and agriculture sectors continue to drive non-hydrocarbon growth, reaching 5.6%, 4.6%, 3% and 2.7% in Q1-2019, respectively.

Political uncertainty is likely to cause a slowdown in the non-hydrocarbon sector in 2019. Top business executives in various sectors have been detained on investigations of corruption, leading to economic disruptions due to abrupt changes in management and supervision, as well as investment uncertainty. In the hydrocarbon sector, political uncertainty will dampen the hope of increasing production as the revision of the hydrocarbon fiscal law is delayed. As a result, GDP growth is expected to decelerate to 1.3% in 2019. The pre-election season is also likely to further delay the fiscal consolidation that had been programmed for 2019, exacerbating the fiscal deficit to an expected 12.1% of GDP and increasing the risk of a sharper adjustment down the road.

On the external front, the current account deficit is expected to widen to 8.1% of GDP, mainly on the back of a substantially larger trade deficit. The recent discovery of a new gas field provides hope for a rebound in gas production and exports, but only in the medium term and only if the hydrocarbon investment framework is conducive.