Benin: Country Economic Forecast: 09 May 2012

Benin's GDP grew 3.1% in 2011 according to the IMF, after severe floods in 2010 limited growth to 2.6%. Reconstruction efforts will continue in 2012 and generate GDP growth of nearly 4% this year despite the weakness of external demand. We expect growth to strengthen to close to 5% in 2013-14 in line with the global recovery, before converging to its long-term trend of around 4.5%. CPI inflation remained below 3% between 2009 and 2011, down from a peak of 8% in 2008 due to high energy prices, and is estimated to have averaged 2.8% last year. But the IMF fears that the reduction in fuel subsidies in Nigeria this year will result in higher fuel prices in neighbouring Benin and exert upward pressure on consumer prices more generally. We assume that the effect will be only partly offset by the impact of slower global growth and expect inflation to average above 5% this year before declining to around 3% in 2013-14. But the risks to the inflation forecast are skewed to the upside in the short term, as second-round effects of higher fuel prices could be more significant than currently expected. The current account deficit widened to over 8% of GDP in 2011, partly because of the higher price of imported fuels and strong demand for investment goods. But we expect the deficit to start to fall this year and then to narrow gradually to under 5% of GDP in 2015.