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EBRD sees stronger growth in southern and eastern Mediterranean in 2019/2020

By Nibal Zgheib

Pickup contrasts with general slowdown in other EBRD regions

Countries in the southern and eastern Mediterranean (SEMED) will see stronger growth in both 2019 and 2020, bucking a trend of slowing economic expansion this year in the rest of the EBRD regions, according to the EBRD’s latest economic outlook.

Average growth across the five SEMED countries – Egypt, Jordan, Lebanon, Morocco and Tunisia – is expected to rise to 4.6 per cent this year from 4.4 per cent in 2018 and increase further to 5.1 per cent in 2020.

The EBRD’s report says social unrest and political instability in Jordan and Lebanon delayed implementation of various reforms last year. However, tourism continued to strengthen in most countries and competitiveness in Tunisia improved due to currency depreciation. The sound implementation of reforms propelled Egypt to its highest growth rate in a decade.  

Economic activity in SEMED is expected to benefit from the implementation of economic reforms and business environment upgrades to promote domestic and foreign investment. Greater domestic and political certainty should also support growth, which will nevertheless remain below pre-2011 levels.

In Egypt, it is tourism, natural gas production, telecommunications, construction and Suez Canal revenues that have driven strong growth, with the economy likely to expand by 5.5 per cent in the fiscal year 2018-19 and by 5.9 per cent in 2019-20, compared with a previous 5.3 per cent.

The main risks to the outlook arise from a persistent wait-and-see approach taken by foreign investors and the erosion of competitiveness because of the recent appreciation of the pound and stubbornly high inflation. The risks are partially mitigated by the authorities’ strong commitment to the implementation of structural reforms.

Growth in Jordan will rise only moderately in 2019 and 2020 and the pace of economic activity is likely to remain well below levels seen before the start of instability in neighbouring Syria and Iraq in 2010 that has exerted significant pressure on the domestic economy.

The EBRD expects modest expansion of 2.2 per cent in 2019 and 2.4 per cent in 2020, after just 1.9 per cent in 2018. Supporting factors for the Jordanian economy should include the implementation of structural reforms, domestic and foreign investment, lower imported energy costs and increased access to finance for small firms.

Jordan will also likely benefit from greater confidence on the back of commitments made at a conference in London in February 2019 in support of investment, growth and jobs in the country and from rising exports following the re-opening of the border with Iraq.

Lebanon is likely to see only a small pickup in growth after a slowdown to just 0.2 per cent in 2018. The outlook remains uncertain.

Investment and private consumption were dampened by political uncertainty following May 2018 elections and by a “wait-and-see” approach following the April 2018 CEDRE conference in Paris, which aimed to spur donor and investor support for the Lebanese economy.

Growth is expected to remain low at 1.3 per cent in 2019 and 2.0 per cent in 2020, reflecting lack of clarity regarding sources of economic growth, political and security risks, both domestic and regional, and subdued growth in traditional drivers such as tourism, real estate, and construction.

Any improvement in the outlook depends on the successful implementation of reforms pledged by the government in the context of the CEDRE Conference. Lebanon is also well placed to benefit from the reconstruction efforts in Syria, should the situation stabilise in that country.

In Morocco, growth is expected to improve to 3.2 per cent in 2019 and 3.8 per cent in 2020 driven by stronger non-agriculture growth, after a slowdown to 3.1 per cent in 2018. The likely upturn will reflect improved fiscal management and economic diversification away from agriculture, a further recovery in tourist arrivals, strong foreign direct investment, rapid expansion of the automotive and aeronautics industries and expanded mining capacity.

Economic growth in Tunisia accelerated to 2.5 per cent in 2018, the fastest growth since 2012, benefitting from an upturn in agriculture on the back of favourable weather conditions and input from the tourism and banking sectors.

Growth in 2019 is forecast to rise only slightly to just 2.7 per cent, held back by the delay in the implementation of structural reforms, primarily due to political uncertainty ahead of elections later in 2019.

In 2020, once the elections are over, the EBRD expects a recovery in foreign investor confidence in Tunisia’s reform momentum which should result in a significant improvement in both domestic and foreign investment and push growth to above 4.0 per cent.

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