- EBRD sees growth slowing to 2.9 per cent in southern and eastern Mediterranean in 2022
- Deceleration driven by the impact of the war on Ukraine
- Growth to increase to 4.7 per cent in 2023 as recovery gathers pace
The European Bank for Reconstruction and Development (EBRD) is forecasting that economic growth in the southern and eastern Mediterranean (SEMED) region will slow from 6 per cent in 2021 to 2.9 per cent in 2022, according to the Bank’s latest Regional Economic Prospects (REP) report, published today.
The forecast is a modest upward revision on the Bank’s previous projection in May, when it expected growth of 2.5 per cent for this year.
The impact on the SEMED region of the war on Ukraine is being felt through higher consumer prices for oil and food, with significant spillovers for public budgets, food security and the medium-term drivers of growth.
All of the region’s economies – especially Egypt, Tunisia and Jordan – are net fuel importers and dependent on food imports. As a result, inflation has soared in 2022 and pressures on foreign reserves have increased.
The impact on tourism has varied but, overall, it has weighed on the recovery in most SEMED economies. Moreover, supply chain disruptions have implications for the region’s more export-reliant economies, notably Morocco and Tunisia, both of which are affected by slowing demand from Europe.
Higher growth of 4.7 per cent is forecast for 2023 as the recovery gathers pace in most of the SEMED economies and as economic and governance reforms advance throughout the region, boosting the recovery.
The SEMED economies in detail
In Egypt, growth doubled to 6.6 per cent in the 2021-22 fiscal year ending in June 2022, driven by strong manufacturing growth, an uptick in Suez Canal revenues and an expansion in construction activity.
However, the recovery levelled off considerably in the second half of the fiscal year (January to June 2022) as global conditions worsened. The rising value of Egypt’s natural gas exports have benefited the economy, but its dependency on imported oil, food and manufacturing products is reflected in inflation, which reached 13.6 per cent in July, fuelled by rising prices for food and energy.
Given the deteriorating foreign exchange reserves, the Egyptian currency has been allowed to depreciate by around 20 per cent since March 2022.
Growth in the fiscal year 2022-23 is expected to slow to 4.7 per cent and will be held back by adverse global conditions, as well as by structural domestic factors that suppress recovery of the non-oil private sector.
Agreement on an International Monetary Fund (IMF)-supported programme is necessary to support the implementation of reform, boost investor confidence and enhance management of the current account balance.
The economic recovery in Jordan remains moderate but robust, reaching year-on-year growth of 2.5 per cent in the first half of 2022, led by a broad-based expansion of the service and industrial sectors, as well as a strong rebound in tourism.
Driven by rising food prices and a 30.6 per cent increase in energy prices after the introduction of electricity tariff reforms, annual inflation continued to rise, reaching 5.3 per cent in July 2022.
GDP growth is expected to level off to 2 per cent in 2022, as the implications of the war on Ukraine weigh on trade flows and tourism, while faster growth in the non-services sector and a stronger recovery in global tourism and trade flows could push growth in 2023 to 2.7 per cent.
Achieving the country’s medium-term growth potential will depend on the successful implementation of reforms announced under the government’s Economic Modernisation Plan to attract foreign direct investment and promote new drivers of growth.
Growth is also likely to continue to benefit from the ongoing IMF-supported reforms. The main risks to the outlook include an erosion of real competitiveness stemming from an overvalued exchange rate, regional instability and slower-than-expected recovery in partner economies.
Rising prices for energy and food, as well as supply chain disruptions, have exacerbated Lebanon’s financial and economic crisis.
Key reforms that are necessary for a potential IMF programme have faced further delays, limiting access to external sources of financing and hindering the authorities’ ability to shore up reserves. Against this backdrop, the exchange rate deterioration has deepened, with multiple rates still in place. Repeated price increases and reductions in the few remaining subsidies, coupled with fuel shortages and limited access to basic commodities, have left large segments of the population in poverty.
Inflation continued to grow in triple digits, reaching 168 per cent in July 2022. A further GDP contraction of 2 per cent is expected in 2022 as the ongoing crisis is worsened by the costlier and intermittent supply of energy and food, as well as by delays in implementing critical reforms and the drying-up of financial resources.
The economy could return to growth in 2023 at 4 per cent, conditional on an IMF-supported programme, which would also allow negotiations to resume with international partners.
The economic recovery in Morocco is slowing considerably in 2022, with GDP expanding by only 0.3 per cent year on year in the first quarter, following a record 7.4 per cent rebound in 2021.
Growth is being held back mainly by a sharp contraction in agriculture due to a severe drought. The poor agricultural season is increasing demand for imported food at higher international prices, amid global supply-chain disruptions, driving Morocco’s inflation rate up to 5.1 per cent in the first half of the year.
GDP growth is expected to slow down to 1.1 per cent in 2022, as tourism and demand for exports remain weak. Morocco is also vulnerable to sharp increases in hydrocarbon prices as it imports most of its energy needs, despite rising levels of renewable electricity generation. The same downside risks are likely to carry over into the next year.
However, 2023 could see a rebound in growth, projected at 3.3 per cent, as agriculture recovers and the pace of growth in other sectors returns to pre-pandemic levels.
Economic growth in Tunisia has been modest in the first half of 2022 at 2.6 per cent year on year, following a recovery of 3.5 per cent in 2021.
Growth is being supported by a rebound in tourism, transport and industrial production, despite the otherwise adverse environment. Rising global prices led to 7.5 per cent inflation in the first seven months of 2022, reaching a 30-year high in July.
The IMF programme remains a priority for the government but progress on agreeing a new programme has been slow, given domestic opposition to the painful reforms, which would affect the public sector wage bill and subsidy reform. The programme would provide much-needed external financing and technical assistance and would boost the authorities’ ability to tackle critical reforms, leading to the expectation of 1.7 per cent GDP growth in 2022.
Growth is projected to reach 2.9 per cent in 2023 as IMF negotiations progress and global headwinds ease.