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Lebanon’s Economic Forecast: Contraction Amidst Conflict

Overview of Lebanon’s Economic Outlook for 2024

RIYADH: The economic landscape in Lebanon is bleak as projections indicate a contraction of approximately 1 percent in 2024. This decline is heavily attributed to the ongoing armed conflict and the worsening political and economic crisis that have enveloped the nation. Despite these challenges, there remains a glimmer of hope for a potential return to growth in the future.

The latest Regional Economic Prospects report from the European Bank for Reconstruction and Development (EBRD) emphasizes that the persistent instability has hindered Lebanon’s gross domestic product growth. Factors such as stalled reforms and a lack of progress on plans with the International Monetary Fund (IMF) are key issues contributing to this dire situation.

Inflation and Unemployment Rates

Inflation has posed another hurdle for the economy, soaring to an alarming peak of 352 percent in March 2023. However, as of July 2024, inflation has decreased significantly to 35.4 percent. Still, the high unemployment rate remains a critical issue, with over one-third of the workforce finding themselves without jobs. This statistic underscores the extensive socio-economic difficulties faced by Lebanese citizens, further amplifying the urgency for effective economic reforms.

The EBRD report suggests that, notwithstanding the current challenges, a future return to growth is feasible. The report optimistically states, "Growth could return to a forecasted 2 percent in 2025, provided regional tensions subside and significant reforms alongside an IMF program are established."

Immediate Policy Changes and Economic Vulnerability

The recent passage of the 2024 budget law, which aligns the exchange rate more closely to market rates, has provided some stabilization for Lebanon’s fragile economy. Nevertheless, the overarching sentiment remains one of vulnerability, indicating that without sustained reform and stabilization efforts, economic prospects could deteriorate further.

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Regional Economic Challenges for 2024 and Beyond

Economic Landscape in the Southern and Eastern Mediterranean

The regional economic forecast for the Southern and Eastern Mediterranean (SEMED) highlights a challenging year ahead in 2024. Nations in this zone are grappling with issues stemming from conflict, slowing investments, and climate-related challenges, all contributing to a restricted growth environment.

The initial forecast anticipates economic growth at 2.1 percent for the first half of the year, with an increase to 2.8 percent anticipated for the full year. This prediction marks a downward revision from earlier estimates, driven primarily by a slower-than-expected recovery in investment in Egypt and the ongoing conflicts in Gaza and Lebanon. The future economic landscape remains uncertain, contingent on several pivotal factors that include the resolution of ongoing conflicts, a rebound in both private and public investments, and a proactive response to climate challenges that are presenting continual risks.

Climate Challenges and Economic Stability in the Region

Severe droughts affecting Morocco and Tunisia, combined with disruptions in Egypt’s energy sector, continue to pose significant risks to economic growth potential throughout the region. The EBRD underscores the urgent need for ongoing reforms and stabilization efforts throughout SEMED to secure long-term economic recovery and growth.

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Individual Country Analyses

Egypt: Navigating Recovery Amidst Disruptions

As one of the largest economies in the region, Egypt is expected to register a growth rate of 2.7 percent for the fiscal year that concluded in June, with a projection of climbing to 4 percent in 2024-25. This recovery process benefits from expansions across various sectors, such as retail, agriculture, and real estate.

Yet, Egypt’s energy sector continues to face significant disruptions, leaving inflation a challenge, albeit moderated to 25.7 percent as of July. The EBRD highlights that while Egypt’s external accounts are improving, with noteworthy financial inflows from international partners, risks persist from ongoing energy supply issues and delayed structural reforms linked to the IMF program.

Jordan: The Impact of Gaza Conflict on Economic Growth

In Jordan, the ongoing conflict in Gaza is anticipated to weigh heavily on tourism and investment flows, resulting in a projected economic growth rate of only 2.2 percent in 2024. Consumer uncertainty is preventing significant expenditures, creating a cycle of reduced economic activity. The EBRD forecasts a modest recovery to 2.6 percent growth by 2025, reliant on a reduction in geopolitical tensions and solid economic reforms.

Jordan’s inflation rate remained moderate at 1.9 percent in July, yet the unemployment rate remains alarmingly high at 21.4 percent, with women and youth facing even greater challenges. The Central Bank of Jordan is working to stabilize the country’s economy by maintaining a policy interest rate in line with the US Federal Reserve.

Morocco: Agricultural and Tourism Resilience in Adverse Conditions

Morocco is currently battling severe drought, severely impacting agricultural output, a cornerstone of its economy. Despite these hardships, projected growth is expected to reach 2.9 percent in 2024. Rebounding sectors such as manufacturing and tourism are anticipated to drive economic recovery, with the government implementing fiscal measures to manage the deficit effectively.

The inflation rate in Morocco has eased to 1.3 percent, providing some economic relief. Nevertheless, the country remains vulnerable to energy import dependencies and climate change’s adverse impacts, which may hinder growth in the coming years.

Turkiye: Economic Stabilization through Policy Revisions

In 2023, Turkiye shifted toward more orthodox economic policies to combat inflation, raising the policy rate to 50 percent. This move was aimed at stabilizing inflation expectations and building investor confidence. As a result, economic growth is projected at 3.8 percent for the first half of 2024, although a decline to 2.7 percent is expected in 2024 due to ongoing risks associated with inflation and geopolitical tensions.

Tunisia: Modest Growth Amid Fiscal Challenges

Tunisia is predicted to achieve modest growth of 1.2 percent in 2024, slightly increasing to 1.8 percent in 2025. While inflation has dropped to 7 percent—a 30-month low—significant economic challenges remain, including a high external debt burden and vulnerability to external shocks. The improvement in current account deficit and rising tax revenues offers some optimism; however, the reliance on external funding and slow progress on IMF programs persists as a risk to Tunisia’s overall economic stability.

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Role of AI legalese decoder in Addressing Economic Challenges

Given the complexities of Lebanon’s economic situation and that of neighboring countries, navigating the legalities involved in restructuring policies or dealing with international financial institutions becomes crucial. AI legalese decoder can play a vital role in this context by simplifying and clarifying legal jargon contained within financial documents, agreements, and reports.

By ensuring that stakeholders, including policymakers and financial institutions, fully understand the intricacies of legal frameworks and their implications, the AI legalese decoder can foster better decision-making. With improved comprehension, decision-makers can utilize legal insights to engage in more effective negotiation with entities like the IMF, thereby facilitating much-needed economic reforms and stabilization measures that can help steer Lebanon and the region towards a more secure economic future.

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