Egypt economy likely to grow 5.5% during current fiscal year

Egypt’s economy is forecast to grow 5.5 per cent in the fiscal year that began on July 1 as Cairo wraps up an IMF-backed economic reform programme.

According to a Reuters poll, the economy is also expected to grow 5.7 per cent the following year.

Forecasts were similar to a Reuters survey of economists released three months ago but analysts’ median forecast for fiscal 2020/21 was lowered marginally to 5.7 per cent from 5.8 per cent.

The forecast growth for the current fiscal year was below the government’s target of 6-7 per cent and slightly under last year’s reported growth of 5.6 per cent.

Analysts expected Egypt’s gross domestic product (GDP) growth to slow to 5.5 per cent in the 2021/22 fiscal year. Prime Minister Mostafa Madbouly said last month he expected GDP growth to accelerate to 8 per cent by 2022.

Egypt’s economic growth has been boosted by improving tourism, strong remittances from Egyptian workers abroad and newly discovered natural gas fields coming onstream.

Next month, Egypt will complete a three-year economic reform programme tied to a November 2016 IMF loan which has been disbursed in full. The programme was designed to reduce Egypt’s budget and current account deficits.

The reforms included letting the Egyptian pound depreciate sharply, removing almost all fuel subsidies, introducing a value-added tax and raising electricity and transport prices.

The measures hit Egyptians hard, and the private sector has struggled to create enough jobs for Egypt’s booming population of 100 million. The government said in July about a third of Egyptians lived below the poverty line of 8,827 Egyptian pounds ($546) a year in fiscal 2017/18.

Egypt’s non-oil private sector contracted for the second consecutive month in September, according to the IHS Markit Egypt Purchasing Managers’ Index (PMI). It has expanded in only six months since the 2016 IMF accord, according to the PMI.

The country will need to create jobs for 3.5 million people over the next five years, the IMF said in its fifth review of the reform programme released this month.

Egypt has also struggled to attract foreign investment since the 2011 uprising that ended Hosni Mubarak’s three-decade rule, except in its oil industry which has seen renewed interest after the Mediterranean’s largest gas field was discovered off Egypt in 2015.

“As of now, capex growth indications still remain muted,” said Allen Sandeep, head of research at Naeem Brokerage. “Assuming interest rates are cut by another 300 basis points, the hope for 2020 and 2021 is that pent-up demand finally kicks in.”

“Retail lending growth has now crossed 20 per cent and could rise to more than 30 per cent next year - for us, an indirect sign that the private non-oil economy could finally flourish,” Sandeep added.

The Central Bank of Egypt (CBE) made two consecutive cuts to Egypt’s overnight lending and deposit rates in August and September. It cut rates by a cumulative 250 basis points, with deposits now at 13.25 per cent and lending at 14.25 per cent. Analysts expect the CBE to make further rate cuts before the end of 2019 as inflation decelerates.

Analysts forecast Egypt’s annual urban consumer price inflation slowing to 10.2 per cent in the 2019/20 fiscal year from as high as 33 per cent in July 2017. They saw inflation falling to 9.2 per cent in fiscal 2020/21 and 8.9 per cent the following year.

The new consensus saw a marked improvement in expectations from three months ago, when analysts foresaw inflation this fiscal year at 13.0 per cent.

“We expect prices to continue to decelerate in October 2019 before rising to high single digits by the end of the calendar year (2019) as they come off a lower base from the previous year,” said Jacques Verreynne, an economist at NKC African Economics.

Meanwhile the Egypt’s annual urban consumer price inflation decreased to 4.8 per cent in September from 7.5 per cent in August, the statistics office said on Thursday, slowing to its lowest level in almost seven years and paving the way for more interest rate cuts.

Inflation has been easing in recent months as Egypt approaches the end of an IMF-backed economic reform programme that during 2017 saw the annual inflation rate rise to 33 per cent.

The IMF reforms helped the government get its budget deficit under control, precluding the need to expand the money supply. This in turn has reduced inflationary pressures.

Reuters