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EBRD expects modest 2023 growth in southern and eastern Mediterranean

By Nibal Zgheib

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  • EBRD sees a slight pick-up in growth to 3.6 per cent in SEMED region in 2023
  • Global inflation outlook and political uncertainty remain downside risks
  • Recovery expected to gather pace in 2024, with average growth of more than 4 per cent

The European Bank for Reconstruction and Development (EBRD) is forecasting modest economic growth in 2023 in the southern and eastern Mediterranean (SEMED) region, according to its latest Regional Economic Prospects (REP) report, published today.

The Bank expects a slight pick-up in gross domestic product (GDP) growth to 3.6 per cent in 2023 from 3.1 per cent in 2022 as economies across the SEMED region adapt to the impact of the war on Ukraine, the agricultural sector rebounds and reforms progress. However, the challenging global inflation outlook and political uncertainty remain downside risks.

The recovery is expected to gather pace in 2024, with average GDP growth of more than 4 per cent, as reforms advance in all of the region’s economies.

The SEMED economies in detail

Growth in Egypt slowed to 4.2 per cent year on year in July-December 2022 (the first half of fiscal year (FY) 2022/23), down from 9 per cent in the same period the previous year.

The slowdown was driven by a deceleration in the manufacturing and construction sectors, which were affected by foreign currency shortages, as well as the impact of the war on Ukraine on Suez Canal and tourism revenues.

The Egyptian pound lost more than 50 per cent of its value against the US dollar between March 2022 and April 2023, amid heightened external vulnerabilities and the central bank’s decision to shift to a flexible exchange-rate regime.

This depreciation, coupled with elevated international commodity prices – Egypt is a net importer of food and oil – pushed inflation close to 33 per cent, despite cumulative policy rate hikes of 1,000 basis points over the previous year.

The slowdown in growth is expected to continue and GDP is projected to increase by 4 per cent in FY 2022/23. Growth is expected to pick up to 4.8 per cent in FY 2023/24.

In Jordan, growth is expected to remain unchanged at 2.5 per cent in 2023 as global headwinds linger and tight monetary conditions weigh on private investment.

Medium-term growth will depend on the successful implementation of the government’s “economic modernisation plan” to attract foreign direct investment.

In 2024, stronger structural reform momentum, more accommodative monetary policy and recovering trade flows should support growth of 2.5 per cent once again. The main risks to the outlook include the erosion of competitiveness stemming from an overvalued exchange rate, potential disruptions to global trade, regional instability and the delayed implementation of structural reforms.

Lebanon’s economy could return to growth of 1 per cent in 2023, after a contraction of 4 per cent in 2022, if the country manages to overcome political hurdles and make some progress on an International Monetary Fund (IMF)-supported programme, which would also allow the resumption of negotiations with international partners.

The country’s challenges, ongoing since 2019, have been exacerbated by rising energy and food prices, as well as supply-chain disruptions, while inflation remained in the triple digits, averaging 183.8 per cent, in 2022.

The official exchange rate was devalued by 90 per cent to LBP 15,000 per US dollar on 1 February 2023, but multiple parallel exchange rates persist, and the local currency plummeted to LBP 131,500 per US dollar on the parallel market in March 2023.

In 2024, GDP is expected to grow by 3 per cent, provided reform momentum gathers pace.

GDP growth in Morocco is projected to pick up to 3.1 per cent in 2023, as agriculture recovers and inflation moderates, and as the country’s removal from the Financial Action Task Force’s (FATF) Grey List gives a boost to investor confidence.

Growth in 2024 is projected to be in line with pre-pandemic levels, at 3.2 per cent, and progress on reforms could give it an additional boost. However, the country remains vulnerable to increases in hydrocarbon prices, as it imports most of its energy. Global supply-chain disruptions may pose further headwinds to growth, while a worsening of global conditions could affect Morocco by way of lower demand from Europe and tighter financial conditions.

In Tunisia, growth is projected to slow further to 2 per cent in 2023, before picking up slightly to 2.3 per cent in 2024. Political instability, the economic slowdown in Europe, limited fiscal space, a lack of access to external financing, a restrictive business environment and delays in the implementation of reforms are likely to continue weighing on the economy.

The Tunisian economy also remains vulnerable to external shocks, thanks to its relatively high dependence on tourism, imported food and energy, and Europe as a market for its exports. Meanwhile, a final agreement on an IMF-supported programme, if reached, could unlock the necessary external financing and accelerate reforms, including the removal of fuel subsidies, a reduction in the public wage bill, a narrowing of the fiscal deficit and improvements in the business environment.

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