* Assassination does not necessarily mean pattern of violence
* Foreign direct investors won't change view immediately
* But unrest already hurting tourism industry
* Political battles may be waged via industrial action
* Economic reforms, IMF loan may be delayed
By Tarek Amara
TUNIS, Feb 20 Political instability in Tunisia looks set to slow growth of its economy this year just as business was starting to recover strongly from the turmoil following the 2011 revolution.
The economy grew 3.5 percent from a year earlier in the third quarter of 2012, according to the most recent official data. That was a rebound from a shrinkage of 1.8 percent for full-year 2011, when the ouster of president Zine El Abidine Ben Ali was accompanied by a wave of labour unrest and street violence that drove away foreign tourists.
Just a few weeks ago, government officials were predicting expansion of around 4.5 percent for 2013 - in line with the average growth rate in the decade before the uprising.
But the killing on Feb. 6 of human rights lawyer and opposition leader Chokri Belaid has ravaged the immediate outlook for the economy, underlining the fragility of the region's recovery in the wake of the Arab Spring uprisings.
Former central bank governor Mustafa Kamal Nabli said Tunisia's economy now faced a difficult year during which the government would have difficulty funding its budget deficit.
"The restoration of political stability and security is a priority because there will be no investment, and no tourism or exports, without stability," he told the local Attounissia newspaper.
The death of Belaid, a fierce critic of Tunisia's Islamist-led government, was the country's first politically motivated assassination in decades, so it does not necessarily indicate a pattern of political violence.
But by upsetting a delicate truce between secular and Islamist groups in the country, it has raised the threat of major unrest; one policeman was killed in street protests that swept the country after the assassination, with crowds attacking offices of the Ennahda ruling party in Tunis and elsewhere.
The threat of violence already seems to have been enough to damage Tunisia's tourism industry, a major earner of foreign exchange and source of jobs.
"The effect is disastrous for tourism...Bookings for French tourists are down by 80 percent compared to the same week last year," said Khaled Allani, a hotel manager in the major eastern resort town of Hammamet.
The number of tourist visits to Tunisia last year climbed 30 percent to about 6 million. The industry is estimated to provide some 7 percent of the country's gross domestic product and 400,000 jobs in a population of about 11 million.
Tourism is also important to pay Tunisia's bills abroad; tourism receipts totalled 1.09 billion dinars ($699 million) in the third quarter of last year, offsetting more than a third of the country's trade deficit of 2.83 billion dinars.
A second threat to the economy is that Tunisians could start waging political battles through industrial action. Belaid's killing prompted labour union UGTT, Tunisia's biggest, to call the country's first general strike for 34 years on Feb. 8.
"The general strike caused the state Treasury losses of about 280 million dinars," estimated former finance minister Hussein Dimassi, predicting that the losses would force the government to cut economic development spending this year.
A third risk is that the political turmoil could distract the government from drafting policy reforms needed to strengthen its finances - while even if such reforms are drafted, it may be hard to win public support for them in such a politically charged atmosphere.
Tunisia has been in talks with the International Monetary Fund on obtaining a $1.78 billion loan, but it is expected to have to reassure the IMF that it is shoring up its budget position with politically sensitive steps such as limiting spending on food and fuel subsidies.
Such undertakings may have become a lot more difficult to give since Belaid's death, partly because the shape of the government that will rule until the next elections, which are expected by the end of the year, is no longer clear.
After the assassination, Prime Minister Hamadi Jebali proposed forming a non-partisan, technocratic cabinet to run the country until the elections. But senior members of his own Ennahda party rejected that proposal, prompting Jebali to resign on Tuesday.
Tunisia may soon resemble Egypt, where the expected signing of a $4.8 billion loan agreement with the IMF, and reforms to the state's subsidy system, have been held up for months by a worsening political climate.
"Once a new government is named, we will enquire about its intentions/mandate. Once the political situation is clarified, we'll assess how best to help Tunisia," IMF spokeswoman Wafa Amr told Reuters in an email on Tuesday.
Economic disaster is by no means inevitable. New foreign direct investment jumped to 3.00 billion dinars in 2012 from 1.62 billion in 2011, partly because of privatisations, according to official data. Last year's total exceeded the 2.17 billion dinars recorded in 2010, before the revolution.
The data shows that because of Tunisia's strengths, including its educated population and proximity to Europe, foreign investment held up fairly well even in 2011.
So long-term corporate investors are unlikely to change their view of Tunisia merely because of a few weeks of unrest this year; investment inflows may continue if the political outlook stabilises in coming months.
The stock market has also held up quite well in the last couple of weeks, suggesting investors are not panicking. The main index tumbled nearly 4 percent on the day of the assassination but has since recovered roughly half of those losses.
Many small, local businessmen do not have the luxury of betting on the long term, however. Some small shop owners in Tunis say they are already close to going bust - particularly those that rely wholly or in part on foreign tourists. The number of customers visiting their stores has shrunk, and some have been closing during demonstrations out of security fears.
"We lost everything because of the political crisis," said Mohamed Ayari, 42-year-old owner of a gift shop. "Our daily profit has become no more than a few dinars." (Additional reporting by Lesley Wroughton; Writing by Andrew Torchia)