Egypt’s GDP is expected to grow by 2.5 percent in the current FY2019/2020 and by 3 percent in FY2020/2021, on the back of the weak outlook in the tourism sector, disruptions in global value chains, weaker demand from trading partners, and the slowdown in foreign direct investment (FDI), according to the European Bank for Reconstruction and Development (EBRD).

In its regional economic outlook report released on Wednesday, the EBRD said that large public construction projects and the boom in the telecommunications sector have so far sustained Egypt’s growth.

On the calendar year basis, according to the report, Egypt’s economic growth will drop by 0.5 percent in 2020, before rebounding to 5.2 percent in 2021.

The main risks to Egypt’s outlook arise from the need for a tougher lockdown should the spread of COVID-19 accelerate and from the negative outlook in Egypt’s main trading partners, according the report, noting that measures to contain the spread of the coronavirus will lead to a slowing of growth in the fourth quarter of current FY2019/2020, which ends in June, and the first half of the next fiscal year.

Growth in Egypt has continued to accelerate in the first half of FY2019/2020, matching the rate achieved in FY2018-19, of 5.6 percent, driven by retail, industry and agriculture, in addition to oil refining, communications, construction and tourism, according to the report.

In the southern and eastern Mediterranean region, where Egypt is located, the EBRD said that the negative impact of the coronavirus is expected to be seen in tourism, a major driver of growth in all of the region’s economies in 2019, a decline in domestic demand due to containment measures, a fall in demand from the main trading partners and slowdown in foreign direct investment inflows.

On average, the economies of the region are expected to shrink by 0.8 percent in 2020 before rebounding with growth of 4.8 percent in 2021, according to the report.

Other economies in the region, including Jordan, Morocco, Lebanon and Tunisia, are all expected to contract in 2020, with an especially sharp drop of 11 percent foreseen in Lebanon, which had already fallen into recession in 2018 and 2019, the report projected.

Economies across the regions of the EBRD are likely to contract on average by 3.5 percent in 2020, because of the impact of COVID-19, with a rebound of 4.8 percent possible in 2021; yet these projections are subject to unprecedented uncertainty, according to the report.

The EBRD’s main scenario is based on the prospect of a gradual relaxation of domestic measures to contain the virus and a return to normalcy during the second half of 2020.

The EBRD’s Chief Economist Beata Javorcik said that as the world emerged from the crisis it was crucial to look towards a future of cooperation and greater economic resilience.

“The crisis has been a massive hit and coming out of it will be just as challenging. This is not the time to engage in economic nationalism and protectionism, but a time to shape a better future through international commitment to free trade, climate change mitigation and economic cooperation,” she illustrated.

The report assumes a modest impact of the crisis on the long‐term trajectory of economic output, with growth resuming towards the end of the third quarter of 2020, but with potentially significant longer-term economic, political and social effects.

“If social distancing remains in place for much longer than anticipated, the recession may be much deeper, with the 2019 levels of output per capita not attained again for years to come,” the report said.

Across the EBRD regions, containment measures have affected domestic demand and supply. External shocks include a sharp drop in commodity prices, weighing on commodity exporters, disruption to global value chains, a collapse in tourism and a drop in remittances, according to the report.

It also expected that almost all EBRD countries are likely to see economic contraction in 2020, with only a small number of exceptions, including Turkmenistan and Uzbekistan, in Central Asia, and Egypt.

As a result, according to the report, weaker external demand will likely further delay the recovery, while output in the region is set to drop in 2020 by 4.3 percent, but bounce back strongly in 2021, by 4.5 percent, according to the report.