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Egypt expected to grow 2% in 2020, against general Arab economic contraction: AMF - Daily News Egypt

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Egypt expected to grow 2% in 2020, against general Arab economic contraction: AMF

Inflation across Middle East expected to surge to 8.8% in 2020, decline to 6.3% in 2021

The novel coronavirus (COVID-19) pandemic is expected to negatively impact Arab economies, particularly sectors affected by full or partial lockdown, according to the Arab Monetary Fund (AMF).

At the individual country level, all Arab economies are expected to contract in 2020, except Egypt. The AMF noted that Egypt is expected to grow by 2% this year, compared with pre-pandemic expectations of 6%.

The small- and medium-size enterprises (SMEs) sector, which contributes about 45% of GDP and one-third of official employment, has been severely affected by the global pandemic.

Arab oil exporters are likely to bear nearly half of the burden from oil supply cuts in 2020 and 2021 approved by the OPEC+ agreement, which will significantly impact regional economies. Despite ongoing diversification efforts in oil-exporting economies, the oil sector still contributes about 27% of Arab GDP, 42% of total exports, and 60% of public revenues.

As soon as the World Health Organization (WHO) declared COVID-19 a global pandemic, Arab governments took serious action to contain the negative impact of the outbreak. Aside from precautionary measures, this included stimulus packages reaching nearly $231.6bn to date, and a variety of measures to mitigate the impacts of the virus.

The levels of stimulus packages vary according to the fiscal space available to each country, the levels of social safety net coverage, and the ability to mobilise large funds in a short time to overcome economic shocks.

Arab economies are facing a multifaceted challenge that will lower activity levels in all sectors. The region’s GDP is expected to contract by about 4.0% in 2020, followed by a gradual recovery in 2021, with economies registering a growth of 2.6%.

The impact of the crisis is expected to be stronger on oil-exporting Arab economies, which face an anticipated 4.7% contraction in 2020. More diversified Arab economies are expected to witness a lower contraction of about 2.0% this year.

As Arab countries move to fully or partially open their economies, there are significant challenges to economic recovery. These include:

  • The narrow policy space available to support medium-term recovery due to increasing internal and external imbalances.
  • The urgent need to ensure an effective, rapid allocation of resources to keep pace with the dynamic structural transformation imposed by the virus, which requires accelerating the pace of digital transformation.
  • 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 that impact on the ability of Arab economies to meet their financing requirements, and the need for innovative financing patterns for the Sustainable Development Goals (SDGS).
    • Safeguarding financial stability and ensuring the banking sector’s ability to extend the required credit facilities needed to support recovery amid the recent decline in bank profits.

The overall inflation level in Arab countries during 2020 was affected by several factors, including the supply of goods and services due to disrupted global supply chains. Some countries in the region have also increased VAT, with other countries also reporting unfavourable domestic developments. 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.

The expected recession and measures taken to maintain stability in goods and services prices during this period in most Arab countries due to the pandemic will lessen the inflationary pressures in 2020. As a result, inflation across the Arab world is expected to rise to about 8.8% in 2020, while inflation is expected to fall to about 6.3% next year.

The global stimulus packages against the novel coronavirus (COVID-19) pandemic have now reached $231.6bn. The global recovery from the pandemic faces challenges, most notably in the narrow policy space available to support the medium-term recovery.

There are urgent needs to ensure efficient allocation of resources across economic sectors, to keep pace with the dynamic structural transformation imposed by the pandemic.

The global economy is witnessing its worst economic crisis since the Great Depression of the 1930s, with the pandemic causing a sharp and unprecedented decline in worldwide economies.

The pandemic is negatively affecting consumers’ and producers’ levels of confidence, production and productivity, domestic demand, trade, and international capital flows. It has brought them all down to their lowest levels for a long time. 

Accordingly, the global economy is expected to shrink by 5% to 8%, and a loss of between $8trn to $12trn is expected over 2020 and 2021, based on estimates released by international organisations.

During such unprecedented crisis, international institutions and the Group of 20 (G20) countries have implemented large-scale stimulus packages to prevent the global economy from going into a deep and prolonged recession.

Governments have stimulated demand through expansionary fiscal policies that have been adopted as part of stimulus packages that now stand at about $14trn. These stimulus packages seek to pave the way for economic recovery, given its significant contribution towards easing the general negative impacts of the pandemic.

This was helped by the reopening of many economies and the gradual removal of restrictions on activities in several front-line sectors. Pandemic-related concerns continue to overshadow the global economy and weaken expected recovery trajectories, particularly as there is likely to be a second or third wave of economic stagnation.

The global economy also stays captive to several growth obstacles, including ongoing trade tensions, global supply chain disruptions, slow progress in human development, and low productivity. Overcoming these challenges requires strong policy efforts, and international collaboration to support economic recovery, facilitate the transformation to further move towards sustainable, and inclusive, economic growth.

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