Sudan and South Sudan Business Forecast Report Q4 2012

Core Views In both Sudan and South Sudan, high and rising inflation poses a significant risk to economic stability, while the shutdown of the oil sector is having a major negative impact on both countries' exports, government expenditures and overall growth outlook. Political risk remains elevated. Although the two countries have stepped away from the brink of all-out war for the time being, the underlying points of contention remain unresolved, and domestic unrest is on the rise. Major Forecast Changes We have downgraded Sudan's real GDP growth from 1.1% to negative 1.4% on account of ongoing government austerity, high price growth and a weak currency, among other challenges. We have revised Sudan's inflation forecasts owing to the sharp uptick seen in June. We now expect headline inflation to be 42.9% at the end of 2012 Key Risks To Outlook A major upside risk to our outlook would be a resolution of the dispute with South Sudan, leading to a resumption of oil production in South Sudan – a development which would support both countries' economies. If the violence – both across national borders and within them – deteriorated into full-blown military conflict, civil war or other seriously disruptive event, we would have to reassess many of our forecasts.