CAIRO - 25 January 2023: In the first months of the COVID-19 pandemic, it was hard to forecast when the world economy could rebound to pre-pandemic levels. Yet, a promising performance had begun to show in 2021, before the Russia-Ukraine War drove the prices of energy and food downhill, incurring inflation and financial crises in many world countries. Economic projections for the year 2023 are quite grim. Although positive growth will persist almost worldwide, the pace will be quite slow. And, to prevent further deterioration, the right monetary and fiscal policies must be put in place in tandem with not neglecting green transition as it ensures sustainability and efficiency on the long term.
Growth and Inflation
In its latest World Economic Outlook released in October, the International Monetary Fund (IMF) estimated that global growth would plummet from six percent in 2021 to 3.2 percent in 2022, and 2.7 percent in 2023. Those figures are the lowest since 2001, except for the periods of the global economic crisis, and COVID-19 lockdowns. The drop is intertwined with economic contraction in the United States in the first half of 2022, and in the euro zone in the second half of the same year. That is coupled with the harsh reemergence of the pandemic in China, which also suffers from a stagnant real estate sector.
Speaking of global inflation, it is expected to almost double recording 8.8 percent in 2022 up from 4.7 percent in 2021. Yet, it is expected to fall to 6.5 percent in 2023, and 4.1 percent in 2024. The most imminent risks that may cause inflation to persist are hiking prices of food and energy, shortage in Russian gas to Europe incurring a reduction in output, and resurgence of COVID-19 or other health crises. The average price of the oil barrel in 2023 is estimated at $85.52 down from the projected $98.19 in 2022, which will impact oil exporters and oil importers differently.
Inflation is hitting hard low-income citizens in developing countries, given that half of their expenditure has been directed to food, which means that their health and living standards are at grave risk.
Simultaneously, the current strict conditions of financing can give rise to a debt distress in emerging markets. In addition, the property crisis in China can have a toll on the domestic banking sector, generating a cross-border spillover.
Sad News to Developing States
In Asian emerging and developing economies, growth is projected to decline to 4.4 percent in 2022 and 4.9 percent in 2023 down from 7.2 percent in 2021. Similar economies in Europe will experience no growth in 2022 and a slight one in 2023 (0.6 percent). The decline is also happening in Latin America and the Caribbean as growth will slump from 3.5 percent in 2022 to 1.7 percent in 2023. A similar scenario is projected for the Middle East and Central Asia, as oil prices are expected to dip. Growth is expected to be 3.6 percent in 2023 down from five percent in 2022. The region that is enduring a less dramatic contraction is sub-Saharan Africa so as growth is projected to drop from 4.7 percent in 2021 to 3.6 in 2022 and 3.7 percent in 2023.
The report recommends that the priority of monetary policies must be inflation containment, while that of fiscal policies must be the protection of vulnerable groups. It also encourages the intensification of "structural reforms" in order to "improve productivity and economic capacity," as that in turn, would "ease supply constraints" and contribute to countering inflation. The IMF further stipulates that green transition would be beneficial on the long run, primarily in terms of energy security, and climate change mitigation.
Blow to Global Trade
The World Trade Organization (WTO) estimates that the volume of merchandise traded globally would grow by just one percent in 2023 down from projected 3.5 percent in 2022. That is because demand is expected to drop in Europe due to the rising energy prices caused by the Russia-Ukraine War, which puts pressure on households, and raises the costs of manufacturing. In the United States, raising the interest rate is shrinking expenditure in the areas of housing, motor vehicles, and fixed investment. As for China, the outbreaks of COVID-19 are disrupting production. And, for developing countries, they are already grappling with rising bills of fuels, food, and fertilizers.
In 2022, the ranking of regions in terms of growth in exports' volume is - from the highest to the lowest - the Middle East (14.6 percent), Africa (six percent), North America (3.4 percent), Asia (2.9 percent), Europe (1.8 percent), South America (1.6 percent), and the Commonwealth by Independent States (-5.8 percent). As for imports, the ranking is the Middle East (11.1 percent), North America (8.5 percent), Africa (7.2 percent), South America (5.9 percent), Europe (5.4 percent), Asia (0.9 percent), and the Commonwealth by Independent States (-24.7 percent).
The projections for 2023 in terms of rise in imports are 0.8 percent in North America; one percent in South America; -0.7 percent in Europe; 9.4 percent in the Commonwealth of Independent States; 5.7 percent in Africa; 5.7 percent in the Middle East; and 2.2 percent in Asia. As for exports, they are estimated to grow by 1.4 percent in North America; 0.3 percent in South America; 0.8 percent in Europe; 3.3 percent in the Commonwealth by Independent States; -1 percent in Africa; -1.5 percent in the Middle East, and 1.1 percent in Asia.
Forecasts for Egypt
The IMF projects that Egypt will achieve the second highest real GDP growth in the Middle East and Central Asia in 2023, which is 4.4 percent. The highest figure will be recorded in Mauritania being 4.8 percent. The financial institution also estimates that Egypt's real GDP growth in 2022 will be 6.6 percent up from 3.3 in 2021. Further, it speculates that in 2027, the country will record a real GDP growth of 5.9 percent, the highest in the region along with that of Somalia (six percent).
As for consumer prices, they, unfortunately, would spike by 12 percent in 2023 up from the projected 8.5 percent in 2022, and 4.5 percent in 2021. Nevertheless, the figure is expected to fall to seven percent by 2027. On the other hand, unemployment is estimated to remain stable at 7.3 percent in 2022 and 2023, as that was the figure recorded in 2021. Regarding the current balance of payment, it will keep declining from -4.4 percent in 2021 to -3.6 percent in 2022, -3.4 percent in 2023, and -1.6 percent in 2027.