Econostrum | Economic News in the Mediterranean

The EBRD forecasts a slowdown in economic growth in the South and East of the Mediterranean

Written by Eric Apim on Tuesday, May 10th 2022 à 17:45 | Read 358 times

According to the European Bank for Reconstruction and Development, the SEMED region is expected to experience a slowdown in economic growth of 2.5% due to the war in Ukraine.

While tourists are returning to Egypt, the war in Ukraine is expected to have an impact on this key sector in most SEMED countries (photo: MCA)
While tourists are returning to Egypt, the war in Ukraine is expected to have an impact on this key sector in most SEMED countries (photo: MCA)
MEDITERRANEAN. In its latest Regional Outlook Report (ROR), the European Bank for Reconstruction and Development (EBRD) foresees a strong impact of the war in Ukraine on the Southern and Eastern Mediterranean (SEMED) region.

Published on Tuesday 10 May 2022, this study envisages a slowdown in economic growth to 2.5% in this group of countries. The conflict "will be felt mainly through higher oil and food prices for consumers, as well as through secondary effects on budgets, food security and growth drivers in the medium term," the EBRD said.

All countries in the SEMED region remain dependent on oil imports. Egypt, Tunisia and Jordan are also dependent on food imports. Tourism, a very important sector for GDP, is also expected to be affected by the war in Ukraine with a "likely negative impact in some of them".

However, the EBRD stresses that "new opportunities may arise for investment in renewable energy", thanks to the potential in the region.

Uncertainty in Tunisia

In Morocco, after a growth of 7.4% in 2021 (against -6.3% in 2020), relying mainly on a record harvest season and a rebound in manufacturing, trade, construction and business services, a slowdown of 1.2% is expected in 2022. Agricultural production will not be as good, due to unfavourable weather and water stress (-64% rainfall). In addition, the impact of the war in Ukraine will be felt.

The EBRD is moderating its forecasts for Tunisia with an outlook of 2% in 2022. Here again, the war in Ukraine and rising oil and wheat prices will affect households and the public budget. Added to this is uncertainty about the economic recovery, which "will depend on progress under a new programme supported by the International Monetary Fund (IMF) that would provide much-needed external financing and technical assistance," the report says.

The EBRD also said that this aid would give the government more room to impose reforms that are controversial with the trade unions and part of the population, but essential, such as the reduction of the public sector wage bill and the reform of subsidies.

Lebanon up by 1

In the first half of the 2021-2022 fiscal year, year-on-year growth in Egypt averaged 9% thanks to improvements in tourism, manufacturing, construction, wholesale and retail trade and agriculture. The EBRD expects this to continue as "rising demand and prices for Egyptian gas exports could support growth in the medium term, while the IMF-supported programme should help reform implementation and investor confidence". However, the report points to rising wheat, food and oil prices due to the conflict in Ukraine. The 2021-2022 fiscal year is nevertheless expected to end with a growth of 5.7%.

Jordan is expected to end 2022 with a growth of 1.9%. "The implications of the war in Ukraine are weighing on tourism and trade flows. Rising commodity prices are dampening private consumption," the EBRD said.

Lebanon, on the other hand, with its 10% GDP contraction in 2021, could see 1% growth in 2022 after having experienced its lowest point and thanks to the legislative elections at the end of May 2022. By evacuating the political impasse, which has lasted for a decade with an economic crisis as a corollary, they will lead to the adoption of reforms that are essential for the country. But also mandatory to obtain the disbursement of the aid programme supported by the International Monetary Fund (IMF).
 The bank is more optimistic for 2023 with growth of 4.8% in the Semed region. "Economic and governance reforms in all countries are progressing and giving a boost to the accelerating recovery," it says.
This figure is, however, misleading. It is inflated by the good prospects for Egypt and the 5% increase expected in 2022-2023. In the other countries studied, an increase is also expected with 3% in Morocco and Lebanon (which starts from a long way), and 2.5% in Jordan and Tunisia.

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