By Nibal Zgheib

Growth in the southern and eastern Mediterranean (SEMED) is forecast at 2.1 per cent for the first half of 2024, according to the latest Regional Economic Prospects report, published today by the European Bank for Reconstruction and Development (EBRD). This is slightly down on the 2.7 per cent in the same period last year. However, growth is expected to pick up to 2.8 per cent in 2024 as a whole and 3.9 per cent in 2025.

This moderation is also a downward revision on the previous forecast for 2024 owing to a slower-than-expected recovery in private and public investment following disruptions in the energy sector in Egypt, severe droughts in Morocco and Tunisia, and the impact of the war in Gaza on the economies of Jordan and Lebanon.

The SEMED economies in detail

Egypt

Growth in Egypt is estimated at 2.7 per cent for the fiscal year ending June 2024 (FY 2023-24), rising to 4 per cent FY 2024-25 as the economy adjusts from the crisis period. On a calendar-year basis, growth is expected at 3.2 per cent in 2024 and 4.5 per cent in 2025. Inflation remains high but is moderating, having fallen to 25.7 per cent in July 2024 from a peak of 38.0 per cent in September 2023. Expansion in the retail and wholesale trade, agriculture, communications and real estate sectors counterbalanced sharp contractions in the gas and non-oil manufacturing industries.

External accounts have recovered since the devaluation of the Egyptian pound in March 2024, supported by increased financial inflows from international partners and investors. In parallel, foreign exchange reserves rose to their highest level in five years.

Downside risks relate to continued disruptions in the energy and electricity sectors and delays in implementing structural reforms as part of an International Monetary Fund (IMF) programme.

Jordan

Spillovers from a prolonged war in Gaza are weighing on the Jordanian economy and are slowing growth for 2024 as a whole to a forecast of 2.2 per cent, particularly through suppressed tourism and investment flows and with consumers holding back on large expenditures in times of increased uncertainty. A slight uptick in growth to 2.6 per cent is projected for 2025, provided geopolitical conditions improve and reforms continue to progress.

Inflation remained moderate despite a slight pick-up during the year to 1.9 per cent in July 2024. Unemployment remained high at 21.4 per cent in the second quarter of 2024, and significantly higher for women (34.7 per cent) and youth (43.7 per cent).

The Central Bank of Jordan has maintained a stable policy interest rate between July 2023 and August 2024, mirroring the decisions of the Federal Reserve as part of its effort to preserve the currency peg.

Lebanon

GDP is expected to contract in Lebanon by 1.0 per cent in 2024, amid deteriorating stability, political inaction and stalled reforms. Growth could return to 2.0 per cent in 2025, but only if the armed war is contained and there is progress on reforms and an IMF programme in place.

Exchange rate volatility eased as Lebanon’s central bank introduced several measures to unify the multiple exchange rates in the economy. This was further helped by the adoption of the 2024 budget law which aligns the exchange rate closer to the prevailing market rate.

As a result, inflation dropped significantly to 35.4 per cent in July 2024 (from a peak of 352 per cent in March 2023), helped in part by easing energy and food prices. Economic conditions remain dire following years of very high inflation and high unemployment of over a third of the labour force.

Morocco

Growth is projected at 2.9 per cent in 2024, rising to 3.6 per cent in 2025. While unfavourable weather conditions are expected to weigh on economic activity this year, the recovery in the manufacturing and tourism sectors, supported by a pick-up in exports and domestic demand, should provide some breathing space. Inflation continued to ease, reaching 1.3 per cent in July 2024, supported by lower food and energy prices.

The government is pursuing a path of gradual fiscal consolidation, which narrowed the deficit to 4.3 per cent of GDP and stabilised public debt at around 70 per cent of GDP in 2023, thanks to higher tax revenues and lower subsidies, despite the rise in external debt servicing costs. The current account deficit narrowed on the back of lower imports and the stronger performance of tourism, remittances, and automotive and electric exports.

Downside risks relate to Morocco’s high dependence on energy imports and seasonal agricultural production, which makes the economy vulnerable to climate and external shocks.

Tunisia

Growth is expected to remain modest at 1.2 per cent in 2024 and 1.8 per cent in 2025, supported by lower inflation, a narrowing current account deficit and continued reform efforts. Contraction in agriculture and mining was offset by an expansion in tourism, financial services, and some industrial sectors. Significant downside risks include the limited fiscal space, large external debt and the economy’s vulnerability to external and climate shocks.

Growth was supported by recovering exports of olive oil, mechanical and electrical goods, and increasing domestic demand amid easing inflation, which dropped to a 30-month low of 7.0 per cent in July 2024.

In March 2024, ratings agency Moody’s upgraded Tunisia’s outlook from negative to stable on the back of maintained access to some bilateral and multilateral external funding, despite the slow progress on an IMF-supported programme.