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EBRD raises forecast for the southern and eastern Mediterranean region

By Nibal Zgheib

  • EBRD raises growth forecast for southern and eastern Mediterranean region
  • Growth in SEMED region predicted at 3.5 per cent in 2021
  • Further increase to 4.6 per cent expected in 2022 as recovery takes hold

The European Bank for Reconstruction and Development (EBRD) is raising its economic growth forecast for the southern and eastern Mediterranean (SEMED) region to 3.5 per cent in 2021, according to its latest Regional Economic Prospects, published today.

The return to growth follows a 2.1 per cent decline in gross domestic product (GDP) in 2020. However, the Bank warns that the speed of recovery would vary from economy to economy, reflecting the slow recovery in tourism, mounting fiscal pressures and political uncertainty across the region.

For 2022, the EBRD economists expect continued growth of 4.6 per cent, provided the region’s economies are supported by structural reforms, a recovery in foreign investment and stronger trade flows.

EBRD Chief Economist Beata Javorcik said: “Although the revised forecasts give reasons to be optimistic, huge uncertainty remains with regards to the path of the Covid-19 Delta variant which poses particularly large risks for countries that have made less progress on vaccinations and for economies highly reliant on international tourism.”

The economies in detail

Egypt was among the few countries worldwide to report economic growth in calendar year 2020. This is expected to continue at a rate of 4.2 per cent in calendar year 2021 and 5.2 per cent in calendar year 2022. On a fiscal year basis, growth is expected to decelerate to 2.5 per cent 2020-21, before picking up to 4.5 per cent 2021-22.

Economic growth in the first three quarters of fiscal year 2020-21 (to end June) averaged 1.9 per cent, led by improvements in wholesale and retail trade, agriculture, telecommunications and construction, offset by sluggish manufacturing activity and weak tourism income.

The telecommunications sector should continue to grow, while falling unemployment rates should support consumption and private investment, and foreign direct investment flows should pick up. Risks include slow vaccination uptake, a weak tourism sector outlook and slowing momentum in major investment projects.

In 2020, the Jordanian economy contracted for the first time in 30 years, shrinking 1.6 per cent according to Government’s estimates, but the recession was modest. While the financial and agriculture sectors were the principal sources of growth, tourism, the main driver of growth in recent years, declined 76 per cent on the year.

Growth is expected to rebound to just 1.5 per cent in 2021 due to the lingering effects of the pandemic, a lacklustre recovery in tourism and fiscal tightening to rein in the country’s growing public debt.

In 2022, growth is seen picking up to 2.2 per cent as Jordan advances reforms and global tourism resumes. The main risks to the outlook include the erosion of competitiveness, regional instability and a slower-than-expected recovery in partner economies.

The Lebanese economy is estimated to have contracted by 25 per cent in 2020 as a result of falling tourism, dwindling capital inflows, lower demand for exports and the derailed implementation of structural reforms. The upward spiral of inflation continued unabated, averaging 85 per cent in 2020 and 140 per cent year-on-year in the first four months of 2021.

A further 5 per cent contraction in GDP is expected in 2021 as a result of the continuing crisis, the government’s inability to borrow on international markets, delays in implementing critical reforms and the drying-up of financial resources.

The economy is expected to return to growth of 5 per cent in 2022, subject to the successful implementation of an International Monetary Fund (IMF)-supported programme, which would allow the resumption of negotiations with international partners.

Morocco’s economy contracted 6.3 per cent in 2020. However, a solid recovery of 4.5 per cent growth is expected in 2021 as the country benefits from the relative success of its vaccination campaign, leading to an increase in tourism. The economy is also likely to benefit from a good rainy season, the expected recovery in Europe, Morocco’s main trading partner, and strengthening exports.

In 2022, a slower rate of expansion is forecast, at 3.5 per cent, as the pace of growth returns to pre-pandemic levels.

Tunisia saw its economy wither 8.8 per cent in 2020. The downturn continued in the first quarter of 2021, as GDP shrank 3 per cent year-on-year. The EBRD economists expect it to recover, however, with projected growth of 2.7 per cent in 2021 and 2.9 per cent in 2022, supported by the impact of better weather conditions on agriculture, notably olive oil production.

The recovery will also depend on the pace of vaccination, allowing the reopening of the economy, including the tourism sector. A strong and sustainable recovery of the Tunisian economy will depend on reforms, however, while fiscal tightening is expected to rein in the strength of any upswing.

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