The projection was made in the Regional Economic Prospects report that was released by the European Bank for Reconstruction and Development (EBRD) on Thursday.

Egypt is the largest member of the EBRD in terms of operations in the southern and eastern Mediterranean (SEMED) region.

In the June edition of the report, the EBRD revised its projections for Egypt’s output growth in 2021 to 4.2 percent, down from the 5 percent it previously projected in October 2020, while expecting the output growth to rise to 5.2 percent in 2022.

According to the FY2021/22 budget plan, Egypt is targeting 5.4 percent growth in output.

Thursday's report said that Egypt’s growth slowed from 3.6 percent in FY2019/2021  to 3.3 percent in FY2020/2021 due to sluggish manufacturing activity and weak tourism, which offset the economic activities of the wholesale and retail trade, construction, agriculture, and telecommunications sectors.

Meanwhile, Egypt’s inflation slowed to 4.5 percent in FY2020/2021 — below the central bank of Egypt (CBE)’s target for the year— and began to increase in the period that extends from July to September 2021, averaging 5.9 percent Y-o-Y, driven by increases in the prices of food and beverages, according to the report.

On the other hand, the EBRD raised its growth forecast for the SEMED region to 4.2 percent for 2021, expecting it to increase by 4.4 percent, driven by an increase in economic activity in Egypt and Morocco.

“The recovery in economic activity has started in most economies of the SEMED region, mainly driven by a rebound in the agriculture and telecommunications sectors as well as limited growth in tourism and exports,” according to the report.

It also noted that the region’s future economic rebound will depend on the strength of the global recovery, progress in vaccination rollout, political developments, and the implementation of reforms to the business environment.

Increasing competition, improving governance, combating corruption, advancing digitalisation, and promoting inclusion are key steps to attracting investors to the region amid the ongoing challenges.

The report increased its forecast for all regions the EBRD operates in for 2021 to 5.5 percent, representing an upward revision of 1.3 percent over its June forecast, backed by a strong performance in the first half of 2021.

However, despite the favourable forecasts, the report warns of serious threats ahead.

“High commodity and energy prices, tight labour markets, supply chain disruption, and currency depreciations in some EBRD economies have begun to push up inflation even before the latest spike in COVID-19 infections. On average, inflation in the EBRD regions exceeded its end of 2019 levels by 3 percentage points in September 2021. In response, a number of central banks in the EBRD’s regions have raised policy interest rates,” the report highlighted.

In 2022, as economies recover, the report expected growth within the EBRD’s regions to moderate to 3.8 percent, which is 0.1 percent lower than expected in June 2021.

However, forecasts are subject to high uncertainty, reflecting risks associated with the future path of COVID-19, possible worsening of external conditions, and weaker growth in trading partners.