Country Economic Forecasts > Iraq

Iraq continues to struggle in the face of its two main challenges the Islamic State (IS) insurgency and ongoing weakness in oil prices, now seen averaging just US$53pb this year (down 46% from 2014). With government spending being cut as a result of sharply lower oil revenues, we expect GDP growth of just 1% this year, after a contraction of 2% in 2014. Growth remains sluggish despite increasing oil output. IEA data show that oil production rose by just over 8% to 3.3m b/d in 2014 and then climbed to 4.3m b/d in September 2015. If recent levels are sustained, output will average just under 4m b/d for the year as a whole, up around 20% from 2014. Given this backdrop, GDP should grow faster in the coming years; the IMF forecasts growth of 7-8% a year in 2016-18, based on oil output rising to 5.5m b/d. But given the major uncertainties, we are more cautious about rises in oil output and see growth at 3.8% in 2016 and then 3-3.5% in 2017-18.Lower oil revenues may lift the budget deficit to over 20% of GDP this year, while the current account is forecast to move from a sizeable surplus in 2014 to a deficit of 5% of GDP this year. With the oil price now forecast to fall to US$47pb in 2016, the twin deficits are expected to widen further in 2016 before starting to shrink in 2017 as oil prices rise.