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Economists forecast 10% hit to GDP

Taking into account the wide ranging impacts the coronavirus pandemic has on the global economy, and the impact it has on Ethiopia; economic experts have come-up with preliminary projections, forecasting a 10 percent hit to its GDP.

Tadele Ferede (PhD), president of the Ethiopian Economic Association and a development economist told The Reporter that COVID-19 will likely cause economic damages of some 200 billion birr or a downturn of 1o percent in the GDP, in the worst case scenario. In that regard, if the government of Ethiopia is to adopt total lockdown measures and the pandemic stays for an extended period of three to six months, the GDP is likely to contract considerably.

According to Tadele, the service sector which includes, hospitality, catering and tourism, air transport and other services is the most fragile and delicate sectors of the economy.

Tadele, a coauthor of a preliminary policy paper: “Economic and Welfare Effects of COVID-19 and Responses in Ethiopia,” which provides insights of possible economic shocks culminating from the pandemic presents, both mild and severe scenarios. In the mild case, with the virus staying for three months, distressing normal course of activities, “The economy will experience a loss of around 44.5 billion birr or 2.2 percent of the GDP compared to the baseline [in the absence of the pandemic].”

In this regard, the service sector alone is said to experience a
contraction of close to four percent.

For Tadele, the agricultural sector remains to be the least
affected. However, under a prolonged duration where the pandemic is
severe, the economy will experience a significant loss.

If the pandemic continues for three months under the assumption
of severe scenario, about 3.6 percent of total GDP contribution from labor
productivity will be lost. This means, more than 74 billion birr will be
lost within three months. Under this scenario, the effect of the COVID-19
on the service sector, in terms of reducing GDP is very high (a reduction of
about 6.1 percent of annual GDP within three months) followed by that of
manufacturing and construction with a reduction of some three percent; and agriculture will see a reduction of about one percent.

However, if the pandemic persists to stay and “remain for at least for six months; a 9.9 percent of the total GDP will be lost under the severe scenario. That means, the country is going to lose more than 204 billion birr within six months,” the impact analysis projects.

The effect of COVID-19 on the service sector in terms of
reducing GDP is very high, with a reduction of 15.7 percent of GDP likely to happen within six months. Manufacturing and construction sectors will be faced with a declining trend and projections indicate they will probably experience close to a 10 percent contractions. Agriculture will no longer be immune and will witness a reduction of 2.4 percent.

In addition, the report noted that the tourism and hospitality sector, transport providers, tour guides and operators, museums, parks, and other tourist attraction features, hotels and restaurants and the like, are particularly affected by the pandemic.

The entertainment industry (cinema, sports, games, night clubs, etc.), foreign trade sector, merchandize business, transport sector, construction sector, and the manufacturing subsector essentially industrial parks, are some of the impacted economic segments feared to feel the burn as COVID-19 starts to take foot in Ethiopia.