EBRD winds back forecasts for southern and eastern Mediterranean region

By Nibal Zgheib

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The EBRD has revised down forecasts for economic growth in the southern and eastern Mediterranean (SEMED) region on the back of political and security concerns in Lebanon and Tunisia, a contraction of the agricultural sector in Morocco and a delay in the rollout of reforms in Jordan.

Egypt, by contrast, will see already robust growth gaining further momentum both this year and next.

In its latest Regional Economic Prospects report, the EBRD predicts growth in the SEMED region of 4.4 per cent in 2019 and 4.8 per cent in 2020, compared with 4.3 per cent in 2018.

The new forecasts are a downward revision of 0.2 and 0.3 percentage points, respectively, compared with previous predictions made in May.

Growth next year will be supported by recovery in the traditional drivers of growth, higher exports, the implementation of business environment reforms to attract foreign direct investment and more political certainty – both domestic and regional.

However, growth in the medium term will continue to be lower than pre-2011 levels.

In Egypt, the economy will likely grow by 5.9 per cent in the fiscal year 2019-20, compared with a previous 5.6 per cent, driven by a further strengthening of the tourism sector and of exports, as well as large public construction projects. Other positive factors are likely to include the re-engagement of domestic and foreign private investors following recent interest rate cuts, and the continued implementation of business environment reforms and prudent macroeconomic policies.

The main risks to the outlook consist in a “wait-and-see” approach from foreign investors, the erosion of competitiveness because of the recent appreciation of the pound and the negative outlook for the economy due to stagnation in the European Union, Egypt’s main trading partner. The risks are partially mitigated by the authorities’ commitment to implementing structural reforms.

In Jordan, gross domestic product (GDP) growth is expected to remain subdued at 2.1 per cent in 2019 and 2.3 per cent in 2020. Positive factors include rising domestic and foreign investment, the lower cost of imported energy, increased finance provided to small businesses and greater confidence following pledges made at an investment conference for Jordan, which was held in London earlier in 2019.

Risks to the outlook include the erosion of real competitiveness stemming from the strengthening of the dinar, slow progress in implementing reforms and regional instability.

The economy in Lebanon is expected to stagnate in 2019 and contract in 2020, with significant downward risks affecting this forecast because of political instability in the country and recent social uprisings, which are undermining the timely implementation of crucial fiscal, energy and structural reforms.

The EBRD sees growth of 0.2 per cent this year, unchanged from the previous year, and a contraction of 0.2 per cent in 2020.

In Morocco, GDP is expected to grow at 2.7 per cent in 2019, down from 3.0 percent in 2018. It will see a strengthening to 3.3 per cent in 2020, driven by stronger non-agricultural growth – particularly in mining and the automotive and aeronautics industries – a rebound in agriculture, continued recovery of tourist arrivals, improvement in fiscal management and an increase in foreign direct investment.

Downside risks include falling growth in Europe, lower commodity prices, rising social discontent and the vulnerability of agricultural production to weather and price developments.

Growth in Tunisia is expected to slow to 1.5 per cent in 2019, from 2.5 per cent in 2018, because of a delay in the rollout of structural reforms in the run-up to presidential and parliamentary elections this year.

The report predicts a recovery in foreign investor confidence and in the reform momentum in Tunisia in 2020 following the elections, leading to a rise in economic growth to 2.6 per cent. Risks stem from the possibility that socio-economic protests will disrupt production and slow progress on reforms, given the new political structure and falling growth in Europe.

The EBRD’s report states that the pace of growth across emerging economies in all of its regions is slowing on the back of a weaker global economic outlook, pressure from slower growth in the eurozone and China, US-Chinese trade tensions and a worldwide contraction in automobile production.

A deceleration in economic growth in the EBRD regions this year has also reflected continued economic weakness in Turkey and a slowdown in Russia, it says.

The EBRD is predicting average growth of 2.4 per cent in 2019 across all EBRD economies, compared with 3.4 per cent in 2018.

The report sees a recovery to 2.9 per cent in 2020, a small downward revision from a forecast of 3.0 per cent in May and still clearly below 2017’s growth rate of 3.8 per cent.

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