Over the past three years, the global economy has faced a series of significant shocks. The COVID-19 pandemic emerged in early 2020, severely impacting international trade and extending its consequences to 2022 and beyond. Then the Russian-Ukrainian war, which began on February 24 2022, has had a profound effect on energy prices, increased uncertainty and led major economies towards geopolitical polarization. Lastly, the sharp rise in inflation levels across most major economies has had enduring effects on various sectors worldwide. These three shocks have greatly hindered the growth prospects of many economies globally, but their impact has been asymmetric, with certain regions and countries suffering more than others. This asymmetry is particularly evident among Mediterranean (Med) countries. For example, Euro Med economies have been more seriously affected by the COVID-19 pandemic compared to other Med countries, while some South Med countries have demonstrated greater resilience in terms of growth dynamics. Egypt and Turkey, for instance, experienced positive growth rates in 2020, the year of the pandemic, although the whole Med area was facing deep recession. The recent surge in energy prices following the outbreak of war and the acceleration of inflation have also had a greater impact on Euro Med countries.

Looking ahead, the growth prospects for the coming years appear to be asymmetric as well, with East Med and oil-exporting South Med countries demonstrating more resilience and positioning themselves for better performance. Nevertheless, despite such significant challenges, real GDP growth in the Med area has remained relatively robust and exceeded expectations in 2021 and 2022.

The resilience of consumer spending and substantial government support in Euro Med countries have supported economic growth, at least until the second half of 2022. However, this ¶{p. 10}fragile recovery is at risk of being short-lived due to increased uncertainty and rising interest rates.

The impact of these extraordinary events in rapid sequence goes beyond the borders of one state or continent, rather affecting the whole world. The provision of food and other supplies, as well as maintaining price stability, has become the world’s most important challenge since the second year of the COVID-19 pandemic. Moreover, Russia’s war on Ukraine has exacerbated the global economic situation, with its repercussions coinciding with those of the pandemic and the recession that countries are still trying to recover from.

In this regard, the data on food and energy supplies are particularly significant, as they reflect the impact that fear can have on market performance. Concerns about the consequences of the Russian-Ukrainian war on farmers and producers led to a 6 per cent increase in wheat prices on the first day of the conflict alone, and since then the curve has steepened to the point that wheat prices recently reached their highest levels since mid-2008. There were also rising oil and gas prices, increased transportation and insurance costs, trade instability and traffic disruptions at Russian and Ukrainian ports, and restrictions on bank transfers to and from Russia. In addition, global economic conditions worsened as the effects of the recession were exacerbated by a sharp drop in economic activity, reduced employment, and a decrease in transportation and productivity, leading to a crisis in supply chains.

Clearly, the damage caused by COVID-19 and the Russian-Ukrainian war cannot easily be undone. The global economic system may take time to regain its equilibrium. It is therefore crucial to establish cohesive strategies that take into account regional peculiarities.

This book presents a collection of essays which analyse from different angles the impact of these shocks, especially the conflict between Russia and Ukraine, on Mediterranean countries. The essays investigate the geopolitical consequences of the war as well as the socio-economic effects of the conflict. The rapid changes in production systems worldwide fostered by geopolitical tensions, the energy battle following the withdrawal of European countries from the Russian market, the rise in prices of food and services, and the pressure from refugees from Ukraine as ¶{p. 11}well as further migration flows from the southern shores of the Mediterranean, have placed new burdens on the welfare systems of many Med countries.

Following these shocks, a difficult recovery path lies ahead for most economies in the area.

Coordinated government policies and joint interventions on specific emergencies would reap benefits on both shores of the Mediterranean.

In its exploration and analysis of the above issues, Mediterranean Economies 2023 comprises ten chapters. In chapter 1, Roberto Aliboni, Francesca Caruso and Andrea Dessì examine the main trends in the MENA region (Middle East and North Africa) from August 2021 to December 2022, covering events from the US and NATO withdrawal from Afghanistan to the Chinese President Xi Jinping’s visit to the Arabian Peninsula. The dominant international focus during this period is the renewed competition among major powers after the Russian invasion of Ukraine.

While MENA countries largely maintain their neutrality to protect their relationships with Russia (and China) or the EU and US, they have been affected by the consequences of the Russian war and subsequent sanctions. There is concern that the Middle East and North Africa, which is becoming increasingly multipolar, may once again become a stage for conflicts among great powers, with Russia and China expanding their presence while the EU and US actively counter their influence in countries like Iran, Syria, Libya and the Sahel region.

Apart from the fallout from the Ukrainian conflict, significant worry revolves around the breakdown of nuclear talks with Iran. Renewed tensions in the Persian Gulf in late 2022 may indicate the start of a new era of containment and potential conflicts between Iran and its regional and international rivals. Such developments would have ripple effects on the broader Middle East and highlight the growing competition among major powers, particularly given Iran’s alignment with Moscow and Beijing. Additionally, there are concerns about the accelerated processes of authoritarian consolidation across much of the MENA region. From the Maghreb to the Mashreq, the Persian Gulf and the Arabian Peninsula, all countries in the region have experienced increased state control over society, with limited signs of change ¶{p. 12}or reform. Ruling elites have utilized the COVID-19 pandemic to suppress renewed protests that emerged in 2019, further tightening restrictions on dissent throughout 2021 and 2022. Various countries in the broader MENA region, including Lebanon, Iraq, Tunisia, Libya, Iran, Morocco, Egypt, Saudi Arabia and the Gulf States, are facing political and economic crises, democratic backsliding, and repression and waves of arrests, contributing to the trend towards authoritarian consolidation.

Additionally, upcoming presidential and parliamentary elections in Turkey are exacerbating tensions and shedding light on the weakening of institutions and the rule of law in the country.

President Erdogan is using the courts to undermine political rivals, and his strong rhetoric and provocative actions abroad are heightening tensions with Greece in the Eastern Mediterranean, as well as leading to military operations in northern Syria and Iraqi Kurdistan in late 2022. The Turkish economy continues to struggle, and these actions are seen as attempts to improve Erdogan’s electoral prospects.

The war of Russia on Ukraine risks producing long-run growth effects in the Med area. Chapter 2 (Salvatore Capasso and Valerio Filoso) studies the economic consequences of the war in the area following two other major shocks, the COVID-19 pandemic and most recently the high level of inflation in more advanced economies. The outbreak of the war in 2022 introduced a higher degree of uncertainty not only in the economic system but also in the international political landscape. The world is becoming increasingly polarized with detrimental effects on international trade and on the geopolitical strategies of major economies. The economic tensions between Russia and Western economies have created unprecedented pressure on the prices of strategic assets and resources, leading to long-lasting effects. International firms from the West have been compelled to relocate their operations not only away from Russia but also from significant markets like China.

Governments are also reassessing their long-term strategies concerning energy and access to international markets. Consequently, there is a risk of the world becoming divided into self-contained blocs with varying technology standards, payment systems and dominant currencies for international transactions. This uncertainty is a setback for investment, which was already ¶{p. 13}on a declining long-term trajectory.

Over the past two decades, the investment-to-GDP ratio has decreased in almost all Mediterranean countries, adversely affecting the growth potential of the region. In particular, South Med countries have experienced the most significant decline in the investment-to-GDP ratio. It is projected that investments in these economies will decrease from an average of 27.3 per cent of GDP in the decade 2000-2009 to around 22 per cent of GDP in 2027. This reduction in investments jeopardizes government policies aimed at reducing income inequalities and facilitating the digital and energy transitions.

After nearly three decades of low inflation and near-zero interest rates, inflation levels have risen significantly in almost all economies worldwide, including the Med countries. The surge in inflation has led to a sharp increase in interest rates, placing additional strain on credit markets and the fiscal space of most Mediterranean governments. This is particularly true for Med countries with high debt-to-GDP ratios. Following the pandemic and the corresponding economic crisis, large Euro Med governments have substantially increased public expenditure to support their economies, resulting in higher government deficits and public debt. For example, Italy’s public debt rose from 134 per cent of GDP in 2020 to 147 per cent in 2022. In an environment of heightened uncertainty and high interest rates, it may become more challenging for these heavily indebted countries to sustain their debt levels in a manageable manner.