Buoyed by relatively high global energy prices and sustained demand for its gas, the Algerian economy continues to perform strongly. In 2023, economic growth was one of the strongest among the region's hydrocarbon-producing countries, and the outlook for 2024 remains favourable. However, the expansionary stance of economic policy is beginning to show some limitations, not least because of rising fiscal imbalances. While the risks of macroeconomic instability are largely contained in the short term, rebalancing the engines of growth remains a major challenge in the medium term. A number of recent decisions by the authorities are moving in the right direction, but efforts to diversify the economy will need to be continued
The Algerian economy has enjoyed almost unprecedented favourable conditions for a decade. 2022 saw twin surpluses return thanks to soaring global hydrocarbon prices and a lower than expected fiscal support. Despite the fragile international environment, the outlook for 2023 is positive and macroeconomic risks are limited. Nevertheless, the persistently high inflation poses a risk that must be monitored. Above all, soaring public spending planned in the budget could contribute to further medium-term macroeconomic imbalances, without providing a major boost to economic activity, however.
The economy of Algeria was already in a precarious position in 2020 when it had to cope with the double shock of the Covid-19 pandemic and lower hydrocarbon prices. Since then, the situation has improved thanks to the rise in global oil prices and strong demand for gas in Europe. For the first time since 2014, the country should be able to post current account surpluses in 2022-2023, and then accumulate FX reserves. The risk of a balance of payments crisis in the short term is receding. But macroeconomic stability remains fragile as prospects for recovery are modest and public finances are structurally in deficit. The implementation of reforms is a priority to prevent economic troubles in the event of a new oil shock.
Algeria has not pulled out of the crisis yet, but it is no longer in the danger zone. Real GDP growth swung back into positive territory in Q1 2021, and external pressures have eased considerably. The factors behind these improvements are essentially cyclical, however, starting with the upturn in oil prices and strong European demand for natural gas. But this will not be enough to balance public finances. The vaccination campaign has not advanced enough to rule out the emergence of a new wave of contaminations. Against this backdrop, parliament just adopted the new government’s action plan. Although diversification efforts are highlighted once again, the lack of quantified targets and a precise timetable throws doubts on their implementation
With a population of 46 million, vast hydrocarbon reserves and its proximity to Europe, Algeria has significant economic development potential, but its future outlook is subject to great uncertainties. Algeria will have to deal with large macroeconomic imbalances. Algeria is fundamentally a state-driven economy that runs large twin deficits. The rebound in global oil prices will not be sufficient to restore macroeconomic stability. The ability of the economy to recover is undermined by the need to consolidate public finances and external accounts. The fragile socio-political context compounds these difficulties. Furthermore, macroeconomic challenges have pushed the authorities to change their attitude towards foreign investors. Several reforms have been introduced since the beginning of 2020 with a view to improve the country’s attractiveness, in particular in the oil and gas sector as many years of under-investment and robust domestic energy consumption have affected the country’s ability to export hydrocarbon products. Algeria is a member of the Organisation of Petroleum Exporting Countries (OPEC).
