The present government in Baghdad will struggle to remain in power. There is considerable frustration among its members at the authorities' inability to quell the continuing violence, and several key groupings have pulled out. As a result, political manoeuvring will take priority over agreeing legislation designed to further national reconciliation, weakening the will of the coalition countries to retain a presence on the ground. A large-scale US military withdrawal, or redeployment to safer areas of Iraq, is thus likely to begin in the middle of next year, gathering pace in 2009. This will lead to an intensification of the ongoing localised struggle for power on the ground, alongside a continuing political process in Baghdad that remains encumbered by self-serving sectarian and factional interests. Oil output growth will be constrained by security problems and persistent underinvestment, but modest increases in output will occur. As a result, real GDP growth should strengthen slightly in 2007-08, to 2.8%, before dipping to just 1.2% in 2009 as the country becomes increasingly fragmented.