All Arab countries economies are expected to shrink, except for Egypt's that is projected to grow by two percent in 2020, the Arab Monetary Fund (AMF) said in its latest report on the Arab economic outlook.

The GDP of Arab countries is likely to shrink by about four percent, economies of Arab oil exporters are expected to contract by 4.7 percent, while the more diversified Arab economies are expected to decline by two percent in 2020 driven by Covid-19 implications, according to the AMF.

The AMF also expected inflation in Arab countries to surge to 8.8 percent in 2020 and to decline to 6.3 percent in 2021.

Covid-19 stimulus packages that Arab countries have launched to contain the pandemic and its impacts reached $231.6 billion, according to AMF estimations.

The report also said that recovery in these countries faces challenges, most notably the narrow policy space available to support medium-term recovery, in addition to urgent needs to ensure the efficient allocation of resources between economic sectors to keep pace with the dynamic structural transformation imposed by the crisis.

“The global economy is witnessing its worst economic crisis since the Great Depression of the 1930s, due to the outbreak of the Covid-19 pandemic which causes sharp and unprecedented decline in economic activities in advanced, developing, and emerging-market economies alike. Above and beyond, the outbreak of the pandemic is negatively affecting consumers' and producers’ levels of confidence, production and productivity, domestic demand, trade, and international capital flows, bringing them all down to their lowest level ever for a long time. Accordingly, the global economy is expected to shrink by five to eight percent, and a loss of between $8-$12 trillion is expected over 2020 and 2021, based on estimates released by international organisations,” reads the report.

The SMEs sector in Arab countries, which constitutes about 45 percent of GDP and one-third of official employment, has been severely affected by the current crisis. In addition, Arab oil exporters are more likely to bear nearly half of the burden of oil supply cuts in 2020 and 2021 approved the OPEC+ agreement, which will have a major impact on Arab economies, according to the report.

The report highlighted that despite ongoing efforts towards diversifying oil-exporting economies, the oil sector continues to contribute about 27 percent of these Arab economies GDP, 42 percent of total exports, and 60 percent of public revenues.

Regarding economic recovery efforts, the report said that Arab economies are facing significant challenges that need to be coped with. These challenges include maintaining an expansionary fiscal policy while ensuring debt sustainability, the need to strengthen social safety nets and adopt active labour market policies to reduce job losses, especially in the SMEs sector, the anticipated tightening of financial markets and its impact on the ability of Arab economies to meet their financing requirements and the need for innovative financing patterns for Sustainable Development Goals, and safeguarding financial stability and ensuring the ability of the banking sector to extend the required credit facilities needed to support recovery amid the recent decline in bank profits.

On inflation levels, the report noted that the overall level of prices in Arab countries as a group during 2020 was affected by the disruption of global supply chains, the increase in VAT levels in some Arab countries, as well as unfavourable domestic developments in some Arab countries. On the other hand, inflationary pressures, resulting from the significant decline in the value of some Arab currencies against foreign currencies will continue to impact price levels in these economies.