Tunisia outlook

Tunisia is enduring a renewed wave of Covid-19 cases which is weighing on the outlook for the country’s economic recovery. We have revised down our real GDP growth forecast from 2021 from 3.8% to 3.0% as there have been some positive signs from other indicators, and the -3.8% contraction in Q1 was the shallowest in a year. However, the longer the pandemic crisis endures the further the risks will tilt to the downside. The expectation remains that H2 should see an improvement, but pandemic developments both at home and abroad are jeopardising this previously anticipated resurgence, especially in the tourism sector.

Real GDP growth, % y/y

Source: Haver Analytics, Emirates NBD Research

The seven-day moving average for new Covid-19 cases in Tunisia has risen sharply to 7,900, far higher than the previous highest peak of 2,900 back in January, running the risk of another ‘lost year’ for the Tunisian economy. In 2020, GDP contracted by -8.8% as it was hit by the pandemic, with the collapse of the tourism sector prompting a y/y contraction of -44% in hotels and restaurants, while the disruption caused to both demand and production as outbreaks hit factories saw manufacturing decline -13%. The authorities have been reticent to implement a full lockdown over fears around what would happen to the economy under renewed comprehensive restrictions, but such a rapid rise in cases will increasingly prompt people to stay at home in any case, underscoring once again that the choice between healthcare and the economy in a pandemic is a false dichotomy. Only some 5% of the population are fully vaccinated, and the current crisis has led to pledges of support from countries around the world including the US and the UAE.

Daily new Covid-19 cases, 7dma

Source: Bloomberg, Emirates NBD Research

The pandemic disruption will weigh on domestic consumption, but it will also weigh on any recovery in the tourism sector. With cases rising, Tunisia was added to the UK’s ‘red list’ of countries from which return is highly difficult, while concerns in the rest of Europe will also deter the return of visitors. Balance of payments data for the first quarter showed that tourism receipts were still down -63.2% y/y, albeit a moderate improvement on the -80.4% decline in Q4 2020. The base effects from 2020’s collapse mean that there will be minimal extra drag through the remaining quarters of the year, but with the crucial summer months already looking highly uncertain, there is unlikely to be major growth impetus either. The hope will be that autumn and winter breaks in the third and fourth quarter will be able to progress along something approaching normality.

One positive from last year was the agriculture sector, which managed to secure growth of 4.4%, and it should remain relatively inured to the current disruptions. Positively, harvests in 2021 are expected to be stronger still, and the agriculture ministry expects the wheat crop to be 7% larger than last year. First quarter data GDP data was not very positive as agriculture contracted by -6.7%, but the expectation is that this will improve through the remainder of the year.