Brussels, 05/03/2004 (Agence Europe) - The European Commission has noted that the Mediterranean region covered by Association Agreements with the EU (including the Gaza Strip and the West Bank, but not Libya) saw economic growth resume in 2003, but at a modest rate. The report gives an overview of recent macroeconomic and structural reform developments for the Mediterranean Partner countries. The situation varies widely from one country to the next according to the internal "Economic Review of EU Mediterranean Partners" which has just been published by the Commission (see yesterday's EUROPE, p. 13).
The report shows that the Mediterranean region experienced a resumption in growth in 2003, resulting in an aggregate growth rate of around 3.5% (1.6% in 2002), while the regional inflation rate receded to around 2%. A number of Mediterranean countries have faced difficulties in meeting their fiscal targets for 2002 and 2003, leading to a further deterioration in their fiscal position. A pick-up in export growth has led to a mild improvement in the average trade and current account balances, to around -3.4% and +2% of GDP respectively. Since 2000, reform progress has been observed in some countries and in selected domains, notably trade liberalisation, fiscal management, privatisation and labour market policies. However, the fragile security situation, low economic growth and a variety of domestic factors seem to have adversely affected the economic reform momentum.
The second edition of the report "Economic Review of EU Mediterranean Partners" was prepared by the Commission's Directorate-General for Economic and Financial Affairs. The report gives an overview of recent macroeconomic and structural reform developments for the Mediterranean Partner countries. In addition, the publication includes two horizontal articles on Fiscal consolidation and Financial system development in the region. Some of the highlights of this issue are the following:
In 2003, most Mediterranean countries experienced a resumption in growth, resulting in an increase in the regional growth rate to around 3.5%, up from 1.6% in 2002. This is still well below the figures for 1996 (5.9%) and 2000 (4.3%), however, since growth fell to 2% in 2001. In 2003, two countries stand out - Morocco and Tunisia - with growth rates of 5.5% and 5.7% respectively. Only Algeria did better, with 6.8%, but this was largely due to a rise in oil prices rather than a strengthening of domestic production, trade or vibrant companies. Israel had the lowest growth in the area, 1%, given its huge security spending and the bad investment and economic situation because of the continuing conflict in the Middle East. The Gaza Strip and the West Bank have returned to the black (+4.5% in 2003, as against -4.5% and - 5% the two previous years). But the report notes that this is simply due to a relative return to normal, with Israel agreeing to come forward with the tax it has levied instead of the Palestinian Authority and this leading to a slight rise in local spending). Overall, the Commission believes that Gaza and the West Bank have actually been suffering an unprecedented decline in national revenue since the end of 2002 and a massive slump in standards of living. Fro the Mediterranean region as a whole, the pick-up in growth was hampered by the weakness of demand from the EU, a deterioration of security in the region and a series of domestic factors.
The European Commission notes that inflation has gone down from an average of around 3.3% in 2002 to 2.1% in 2003, due to a relaxing of price pressure, particularly in Israel. 'A number of Mediterranean countries faced difficulties in meeting their fiscal targets in 2002 and 2003, due to lower than expected growth, depressed revenues and, in some cases, higher expenditures. Most countries have experienced higher deficits, especially Jordan, Israel and Syria. The average regional fiscal balance excluding grants has deteriorated further to around 6% in 2003, calling for a reinforcement of fiscal consolidation efforts.' The report continues: 'A pick-up in export growth has led to a mild improvement in the average trade and current account balances, to around -3.4% and +2% of GDP respectively.'
The report notes that since 2000, there has been progress in various countries: 'Some progress in other selected reform domains has been noted in the Mediterranean region in the period 2002-03. With regard to trade liberalisation, particular progress has been observed in Morocco and Tunisia. The privatisation process yielded mixed results, however, with a number of successful operations in Jordan and, more recently, in Israel. Finally, labour market regulations changed for the better in Egypt and Morocco through the adoption of a "Unified Labour Law" and the "Labour Code", respectively. 'However, the fragile security situation, low economic growth and a variety of domestic factors seem to have adversely affected the economic reform momentum.'
In the report, the Commission pays particular attention to reforms that directly or indirectly impact on the EU's cooperation and funding of projects, referring regularly to 'economic dialogue' on areas such as transition as part of the EuroMed Dialogue. Generally, greater effort must be made to turn Mediterranean countries into viable market economies with a dynamic private sector and efficient public administration. Progress is also required in terms of applying legislation, improving the investment climate, promoting good governance and reforming the role of the state. The technical assistance planned as part of the good neighbours policy (replacing or fine-tuning the EuroMed Process launched in November 1995) is expected to contribute to this area, along with FEMIP funding, managed by the EIB.