Growth forecasts for the southern and eastern Mediterranean (SEMED) region are being wound back because of political tensions in the region as well as a slowdown in global trade, according to the EBRD’s latest Regional Economic Prospects report.
The Bank’s forecast for the region for 2016 has been revised down to 2.9 per cent in 2016, a full 1.2 percentage points down from the previous forecast released in November 2015. A recovery to around 4 per cent is expected for 2017.
Growth in Egypt has slowed due to a fall in tourism receipts and a decline in Suez Canal earnings because of slower global trade and weak competitiveness. Tourist arrivals fell by over 45 per cent in Egypt on the previous year, after the downing of a Russian aeroplane over Sinai in October 2015, and will likely take time to recover, the report says. Helped by improved competitiveness in Egypt, a 4.2 per cent rebound is expected in 2017.
Given the difficult regional environment and slowing global trade as well as a contraction in the tourism and construction sectors, growth in Jordan is expected to rise from 2.4 per cent in 2015 to just 3 per cent in 2016, below the previous forecast of 3.5 per cent. A modest improvement to 3.3 per cent in 2017 is expected to be driven by private consumption – supported by higher demand from rising numbers of refugees.
Regional turmoil has also adversely affected Jordanian exports, which contracted by 8 per cent while foreign direct investment fell by 37 per cent.
The Bank’s forecasts for Morocco for 2016 have been also revised down, to 2.3 per cent from 4.5 per cent in 2015, affected by sluggish growth in Europe – Morocco’s main trading partner – a decline in the tourism sector to 1.4 per cent in 2015 and continued modest growth in non-agricultural sectors.
However, Morocco’s industrial strategy of developing high-value-added sectors, such as the automotive and aeronautical industries, is showing positive results and is offsetting the decline in more traditional sectors such as textiles or tourism.
Exports in the Moroccan automotive sector grew by 20.9 per cent over 2015, outstripping total export growth of 6.7 per cent. Regional security concerns continue to adversely affect tourism.
Although slow, growth in Tunisia is expected to reach 1.6 per cent in 2016 and gradually pick up to 2.5 per cent in 2017 compared with 0.8 per cent in 2015. Terrorist attacks in 2015 severely affected the country’s tourism sector. Industrial disputes in mining industries as well as cutbacks in investment by foreign oil companies in the energy sector led to contractions in output of over 6 per cent year-on-year.
Financial vulnerabilities also remain; the Tunisian banking system has the highest ratio of non-performing loans in the SEMED region, at 16 per cent at the end of 2015. NPLs are rising due to the exposure of banks to the tourism sector.
The EBRD’s latest Regional Economic Prospects report sees average growth across the Bank’s 36 countries of operations of 1.4 per cent in 2016, a shade below the 1.6 per cent seen last November, but above the 0.5 per cent result for 2015. A further strengthening is forecast to 2.5 per cent in 2017.
The slightly softer outlook reflects a further drop in the price of oil since the previous report, increased volatility in global financial markets, lower capital flows to emerging markets worldwide, weaknesses in global trade and increasing geopolitical tensions.
In contrast with the European Central Bank’s more accommodative stance, the US Federal Reserve has raised interest rates since the last report. The move was widely anticipated and largely priced in by the markets. Markets expect the Fed to raise the interest rate further in 2016 but only slightly, given the sell-off in global markets early in the year and the decline in valuations of banks. Given the expected tightening of monetary policy in the US however, capital inflows into emerging markets are bound to remain lower than in recent years, EBRD noted.