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Egypt's economy holds to EBRD projections, escaping recession in 2020: GDP growth to reach 2%

The European Bank for Reconstruction and Development has revisited its forecasts for emerging economies in light of measures undertaken to mitigate Covid-19

Doaa A.Moneim , Thursday 1 Oct 2020
EBRD
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Egypt is the only economy across all regions in which the European Bank for Reconstruction and Development (EBRD) invests that is expected to escape recession in 2020, with projected growth of two percent, driven partly by large public construction projects and a boom in the telecommunications sector, maintaining expectations detailed in a bank report released in May, the EBRD announced Thursday.

The EBRD has revisited its forecasts for emerging economies in the wake of the measures taken to contain the impacts of the coronavirus pandemic, which has lasted for longer than previously anticipated.

The EBRD raised these economies’ growth outlook to reach 3.9 percent in 2020, up from 3.5 percent, while the growth projection for 2021 has declined to reach 3.6 percent down from 4.8 percent forecast in May.

EBRD economies have seen pressure on supply and demand because of domestic measures to contain Covid-19, while external shocks have included low commodity prices, shrinking exports, a collapse in tourism and drops in remittances, according to EBRD forecasts.

The EBRD said in its report that its latest set of forecasts are subject to a high level of uncertainty and are dependent on the accuracy of early estimates of growth in the first half of 2020. In addition, they are sensitive to whether governments impose further lockdowns and how people may react to a continuation of the pandemic.

The new report expects that some sectors, such as tourism, may face lasting damage, but says others, such as online retail, could benefit from increased digitalisation.

Exports from EBRD regions were down by over 14 percent in the first half of 2020, compared to the same period of 2019, according to the report.

International as well as domestic tourism fell sharply, with international tourist arrivals to EBRD regions down by 65 percent in the first six months of 2020, compared to the same period in 2019, according to the report.

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Output in the southern and eastern Mediterranean region, where Egypt is located, is projected to contract by 1.3 percent in 2020 as a result of containment measures, a drop in tourism, falling external demand and a slowdown in foreign direct investment inflows.

GDP could rebound to 4.4 percent in 2021, conditional on the implementation of reforms and reduced political uncertainty, according to the report.

Output in EBRD regions contracted sharply in the second quarter of 2020 by around 8.2 percent (Y-o-Y), while the contraction in many economies was larger than declines seen during the 2008 global financial crisis, according to the report.

The new report highlighted the findings of a survey conducted in August 2020 by the EBRD and the Munich-based IFO Institute showing that the economic impact of the Covid-19 crisis on people’s lives was more pronounced in EBRD regions than in advanced Europe.

According to the survey, job losses, and in particular business closures, appear to be more widespread than during the 2008 global financial crisis, and the burden of the crisis is disproportionately borne by those with lower levels of education and income.

The survey reveals that 73 percent of respondents in EBRD regions say they have been personally affected by the Covid-19 crisis, compared to only 41 percent in advanced Europe, where stimulus packages were larger.

Workers in the region have so far relied more on supplementary employment than during the 2008 global financial crisis, given that a fifth of respondents in EBRD regions said they increased hours in their existing jobs and a similar share said they started a second job.

Another EBRD survey on small and medium-sized enterprises (SMEs) suggests that SMEs are more optimistic about recovery in economies where stimulus packages were larger.

The survey shows that the crisis had the strongest impact on SMEs in hospitality and recreation services, non-food retail, light industry and construction, stating that over 40 percent of SMEs in hospitality and recreation services saw sales drops by more than half in the first quarter of 2020. 

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