- The EBRD forecasts growth in the SEMED region to pick up to 3.7 per cent in 2025, from 2.5 per cent in 2024
- Average growth is projected to rise slightly to 4.1 per cent in 2026
- Uncertainty over global trade rules weighs on investment and production
Economic growth in the southern and eastern Mediterranean (SEMED) region is expected to accelerate from 2.5 per cent in 2024 to 3.7 per cent in 2025 and 4.1 per cent in 2026, according to the EBRD’s latest Regional Economic Prospects report.
The uptick began at the end of 2024 after mostly muted growth caused by a prolonged period of regional instability and a sharp contraction in output in Lebanon as a result of the war with Israel.
Despite the positive outlook for the next two years, significant downside risks remain, such as the resumption of wars, uncertainty surrounding foreign aid and tariff policies as well as climate-related shocks.
The new report, entitled “Weaker momentum amid fragmenting trade and investment”, highlights subdued global growth momentum and a persistent gap between the performance of advanced European economies and that of the United States of America.
It cites growing uncertainty surrounding potential increases in tariffs on US imports and retaliatory measures by trading partners. The heightened uncertainty alone is enough to discourage investment, weaken production and disrupt global supply chains, according to the report. Looking beyond this uncertainty, the short-term impact of tariffs and trade restrictions on individual economies will depend on whether tariffs are applied universally or just to selected trading partners.
A scenario in which the United States raises tariffs on all imports by an additional 10 percentage points could reduce GDP in the EBRD regions by 0.1 to 0.2 per cent in the short term. While Hungary, Jordan, Lithuania and the Slovak Republic are some of the EBRD economies that are most vulnerable to such measures owing to their overall trade exposure to the US market, the report shows that Bulgaria, Romania and Slovenia are the most exposed to recently announced increases in US tariffs on steel and aluminium.
The SEMED economies in detail
Egypt
Growth is expected to increase from 2.4 per cent in the 2024 financial year (FY, ending in June 2024) to 3.6 per cent in FY2025, particularly as growth gained momentum in the first quarter following expansions in the communications, accommodation and food, transport and storage, (excluding the Suez Canal) and financial services sectors. The manufacturing sector also started to recover following a contraction in the previous year while the extractive sectors posted the sharpest contractions. These trends are expected to continue driving momentum for the remainder of the year. In FY2026 growth is expected to rise further to 4.6 per cent as business confidence recovers and structural reform progresses.
Inflation slowed to 24 per cent in January 2025 and prices will likely continue to fall due to base effects and tight monetary policy, despite necessary future adjustments to fuel prices.
The external position has improved since the Ras Al Hikma deal prompting ratings agencies Fitch and S&P Global Market Intelligence to upgrade Egypt’s sovereign rating in 2024, but vulnerabilities remain. Reserves continued to grow reaching US$ 47.3 billion in December 2024, supported by increased remittances and tourism receipts which offset a nearly 60 per cent drop in Suez Canal revenues in 2024.
Jordan
Economic growth in Jordan is expected to reach 2.3 per cent in 2025 compared with 2.2 per cent in 2024. This is owing to de-escalating regional conflicts, the re-opening of the Syrian market to Jordanian businesses and a recovery in tourism and foreign investment. Meanwhile, uncertainty over US foreign aid and trade policies could weigh on growth and slow recovery during the year. In 2026, growth is expected to pick up to 2.6 per cent in 2026 as uncertainties ease.
Commitment to fiscal discipline and progress on structural reforms have preserved market confidence, resulting in sovereign credit rating upgrades in 2024 by Moody’s and S&P.
In the meantime, unemployment remained high at 21.5 per cent in the third quarter of 2024, while inflation was stable averaging 1.6 per cent in 2024, despite an uptick in the closing months of the year.
Mirroring the decisions of the US Federal Reserve as part of its effort to preserve the currency peg, the Central Bank of Jordan lowered its policy rate by 50 basis points in September 2024 while foreign exchange reserves remained healthy, covering around eight months of imports.
Lebanon
Growth is expected to recover to 2.0 per cent in 2025 and 3.0 per cent in 2026 as the economy rebounds and political stability is at least partially restored, following the election of a new president. The projected rebound assumes lasting political stability, progress on critical economic reforms, including banking sector restructuring, and an agreement on a programme supported by the International Monetary Fund, which could help to bring back international donor support and foreign investment to Lebanon.
However, in 2024 the Lebanese economy is estimated to have contracted by 5.7 per cent as the war with Israel resulted in widespread displacement of people and damages to the country’s infrastructure and physical capital, estimated at US$ 3.4 billion (with estimates of economic losses in excess of US$ 5 billion)
The Lebanese pound has bottomed out, having lost 98 per cent of its value against the US dollar since August 2023. Inflation continuously decelerated, reaching 15.4 per cent year on year in November 2024, and the economy has largely dollarised because of the economic crisis.
Morocco
Growth in Morocco is expected to pick up from 3.0 per cent in 2024 to 3.6 per cent in 2025 and 3.4 per cent in 2026 as structural reforms yield positive results. In 2024 the extraction, manufacturing and construction industries expanded while the drought at the beginning of the year negatively affected the sizable agricultural sector.
Core inflation has been stable, standing at 2.5 per cent in the final quarter of 2024, slightly above the preceding quarter’s rate of 2.3 per cent. In June 2024 Bank Al-Maghrib became the first central bank in North Africa to loosen its stance, bringing the policy rate down by 25 basis points to 2.75 per cent.
Lower energy imports as well as higher remittances, automotive exports and tourism receipts, which increased by 20 per cent year on year, are expected to continue to support the current account balance, which registered a deficit of 1.6 per cent over January to September 2024.
Tunisia
Economic growth in Tunisia is expected to pick up from 1.2 per cent in 2024 to 1.8 per cent in 2025 and 2.2 per cent in 2026 as fiscal consolidation continues alongside recovery in exports and tourism receipts.
Inflation averaged 7.1 per cent in January to November 2024, down from 9.5 per cent over the same period in 2023, while unemployment increased slightly, to 16 per cent in the second quarter of 2024.
The fiscal deficit is expected to improve to 6.3 per cent of GDP in 2025, supported by enhanced revenue mobilisation and lower basic goods subsidies. A medium-term fiscal consolidation plan targets a deficit of 5.5 per cent of GDP and a wage bill of 13.3 per cent of GDP.
Public debt remains high at 82.2 per cent of GDP but is expected to drop to 80.5 per cent in 2025 reflecting fiscal consolidation efforts. Around half of debt is external, down from more than 70 per cent in 2019.
Tunisia’s external position has improved but remains vulnerable to major shocks. The current account deficit stood at 1.6 per cent of GDP in January to November 2024, down from 2.3 per cent over the same period the preceding year. This reflects a contraction in imports due to lower commodity prices, and a growth in exports led by mechanical, electric and olive oil products. Foreign exchange reserves remained stable at US$ 25 billion in November 2024, covering 3.7 months of imports.
Source: Eurostat for EU economies, national authorities and EBRD.
Note: Weights are based on values for GDP in 2022 at market exchange rates. In the case of 2024 growth, “revision since Sep ‘24” refers to the difference between estimated growth in 2024 and the forecast made in September 2024. The table also includes forecasts for Belarus and Russia, notwithstanding the fact that Russia and Belarus have had their access to Bank resources suspended under Article 8.3 of the Agreement Establishing the EBRD.