Economic growth remains strong in 2017, fueled mainly by construction and rising transit trade and transshipment for Ethiopia with improved port and transport infrastructure. Although fiscal and external positions are improving gradually, debt and fiscal sustainability risks remain. With more than a fifth living in extreme poverty and nearly 40 percent of the labor force unemployed, reforms to make growth more inclusive, with increased job creation and improved productivity and human capital, will be critical.
GDP growth is projected at 7.1 percent in 2017 reflecting an acceleration from the estimated 6.5 percent in 2016. Growth is mainly driven by construction and rising transit trade and transshipment for Ethiopia with improved port and transport infrastructure. Inflation is expected to remain at 3.5 percent, driven mainly by demand for housing and services. The latest official unemployment rates show weak links between growth and employment generation: the rate was 39 percent in 2015, with women (49 percent) and rural areas (59 percent) showing higher rates. Meanwhile, the labor force participation rate is less than 25 percent.
The fiscal deficit is projected to significantly narrow to 3.8 percent of GDP in 2017, from an estimated 15.2 percent in 2016, given that mega-infrastructure projects for port development and railways construction, which triggered large capital expenditure, have ended. The external deficit is also projected to improve to 15.4 percent of GDP in 2017 from 22.2 percent in 2016, as capital imports wind down. FDI is expected to rise to 10.8 percent of GDP in 2017 from 9.1 percent in 2016, stimulated by ongoing US$4 billion gas pipeline construction between Ethiopia and Djibouti, due for completion in 2019; industrial development in the new free zone in Djibouti City; operations of the newly constructed Djibouti-Addis railway; and the construction of the “Hassan Gouled Aptidon International Airport”, 25 km south-west of Djibouti City, expected for completion in 2018.