Tunisia's real GDP fell 0.1% year on year (y/y) in the third quarter as services and non-manufacturing industries weighed on growth. Weakness in the services sector driven by the sharp deterioration of the tourism industry, along with sluggish external demand, continued sociopolitical unrest, and the slow pace of government reform efforts will likely see growth fall to just less than 1% in 2015, before rebounding modestly to nearly 3% in 2016.
IHS perspective | |
Significance | Tunisia's third-quarter GDP contracted 0.1% y/y as services activity fell 0.9% and non-manufacturing industries' output fell 3.9% y/y. |
Implications | The contraction in the all-important services sector was largely expected given the sharp deterioration in the tourism industry related to twin terror attacks in March and June. |
Outlook | We expect Tunisia's economic growth to fall to just less than 1% in 2015, before rebounding to around 3% in 2016, but growth prospects remain unsteady. |
Preliminary estimates suggest that Tunisia's GDP declined 0.1% y/y in the third quarter, following 0.7% y/y growth in the second quarter. On a quarterly basis, real GDP expanded 0.1% in the third quarter, following two consecutive contractions of 0.2% quarter on quarter (q/q) and 0.7% q/q in the first and second quarters, respectively. The contraction in the services sector's activity and the sharp fall in the output of non-manufacturing industries weighed down overall growth despite a buoyant quarter for the agricultural sector, which expanded 5.9% y/y.
Tunisia's real GDP and components (Y/Y % change) | ||||||||
Q3 2015 | Q2 2015 | Q1 2015 | Q4 2014 | Q3 2014 | Q2 2014 | Q1 2014 | 2014 | |
GDP | -0.1 | 0.7 | 1.7 | 2.3 | 2.4 | 2.0 | 2.4 | 2.3 |
Agriculture | 5.9 | 6.0 | 6.9 | 3.5 | 2.9 | 2.4 | 2.5 | 2.8 |
Manufacturing | -0.8 | -1.7 | 1.1 | -0.3 | -0.6 | -1.1 | 0.2 | -0.6 |
Non-manufacturing industries | -3.9 | -0.7 | -3.7 | -2.0 | -2.8 | -5.4 | -1.6 | -3.1 |
Services | -0.9 | -0.1 | 1.6 | 2.8 | 3.3 | 3.2 | 3.0 | 3.1 |
Non-market activities | 2.5 | 3.3 | 3.4 | 4.2 | 4.3 | 4.7 | 4.2 | 4.3 |
Source: Institut National de la Statistique. | ||||||||
Outlook and implications
Tunisia's real GDP growth will likely slide to just less than 1% in 2015, as third-quarter GDP data came in worse than expected. The decline in activity in the services sector, which represents nearly 45% of the economy, was largely expected given the sharp deterioration of the tourism sector as visitor arrivals fell by nearly 30% y/y through October. The robust performance of the agricultural industry was the only bright spot in the third quarter, as record olive oil exports contributed to 6% growth in the sector. Although more detail is not available from the preliminary data release, the sharp fall in non-manufacturing industries could be due to falling hydrocarbon and phosphate production. Socioeconomic and labour unrest disrupted output in both industries at various times through the first six to seven months of the year, but it appears some easing of work disruptions has not yet stabilised output. The construction sector also has come under pressure this year as fiscal consolidation efforts and governance challenges have reportedly slowed the execution of capital spending projects. The weak performance of the manufacturing sector also continued, as the slow pace of government reforms, such as a long-delayed investment law, falling domestic investment, and still sluggish export demand from the Eurozone combined to undermine the sector.
More broadly, Tunisia's economy has struggled to gain traction in recent years and growth will average less than 2% during 2013-15, compared with 3.9% in the previous decade, as political uncertainty, socioeconomic unrest, and weak external demand from the Eurozone have weighed on growth. Although 2015 has seen a continuation of these trends to some degree, the negative shock on the tourism sector from the March and June terror attacks undermined some of the progress that had been made. Nevertheless, oil and gas production has been on the decline for several years as new exploration has not kept pace with falling output and depletion of reserves. In addition, political unrest and slumping oil prices likely dissuaded significant new investment. Positively, foreign investment in the energy sector has risen in 2015 for the first time in years, though it may take some time to stabilise and increase production, even assuming recurrent protests and work stoppages can be dissuaded. Public investment also has suffered through the under-execution of capital spending projects, partly related to fiscal consolidation efforts.
Overall, we expect Tunisian economic growth to fall to just less than 1% in 2015, before rebounding to around 3% in 2016, but growth prospects remain unsteady. In part, Tunisia's real GDP growth will benefit from positive base effects in 2016 given that we expect a mild rebound in the tourism sector, with the worst of the shock taking place in 2015. Nevertheless, we expect growth to remain somewhat subdued in the 3-3.5% range in 2016-17, before an acceleration over the medium term to 4.5-5% by 2020. Downside risks remain prevalent in the near term, with political infighting, a tenuous regional security environment, and still lacklustre Eurozone demand weighing on the outlook.