Preliminary estimates reveal that Egypt’s economy expanded healthily in annual terms in the first half (1H) of FY2021/22 (July – December 2021), according to FocusEconomics’ Consensus Forecast for the Middle East & North Africa for April 2022.

The forecast projected Egypt’s total investments to grow by 14.4% in FY2021/22 — up by 0.4 percentage points from last month’s forecast — and 9.3% in FY2022/23. It also projected a GDP growth of 5.4% in FY2021/22, which is unchanged from last month’s forecast. Moreover, it expected a GDP growth rate of 5% in FY2022/23.

Furthermore, it projected inflation to stand at 8.9% in CY2022 — which is up by 1.7 percentage points from last month’s forecast — and 7.7% in CY2023.

“Dynamics likely slowed in 3Q and at the outset of 4Q, as soaring prices for energy and grain resulting from the Russian-Ukrainian war and higher global interest rates hammer output. On 11 March, Egypt — the world’s largest wheat importer — banned exports of related commodities for three months to protect reserves,” the report read.

“Moreover, authorities approved a bundle of measures to partly alleviate the strain, including the allocation of $2.3bn for local wheat purchases and the increase of pensions, public salaries, and tax exemptions. Meanwhile, Egypt is seeking a new IMF programme that could help mitigate the economic fallout from the war. Additionally, from 1 May the Suez Canal — the government’s main source of foreign reserves — will see temporarily increased taxes on oil, petroleum products, and liquified gas tankers.”

“GDP growth should accelerate in the current FY, before slowing slightly in FY2022/23 — which starts in July 2022. The war will likely impact the all-important tourism sector, while the additional fiscal measures should see a widening of the deficit in coming months. Moreover, high debt, volatile energy prices, and food security are all key downside risks to the outlook,” it added.

“Inflation climbed to an over two-year high of 8.8% in February (January: 7.3%), amid higher prices for food. Price pressures will accelerate in the short term and are now seen surpassing the upper bound of the Central Bank’s 5.0–9.0% target band. Higher food and energy prices will push up inflation further this calendar year.”

On 1 April, the EGP traded at 18.28 per USD, marking a 14.1% depreciation from the same day a month earlier. This follows the Central Bank’s move to allow the pound to depreciate, as it eyes a new programme with the IMF. Looking forward, the currency is expected to appreciate somewhat from current levels by the end of 2022. The report predicts that the EGP will stand at 17.11 per USD by the end of 2022 and 17.59 per USD in 2023.

Farouk Soussa — an analyst at Goldman Sachs — said that: “Global commodity prices have continued to trend upwards, and our analysis shows a greater correlation between these and domestic prices in the post pandemic period. Since the start of the year, Egypt has raised the domestic price of sugar and gasoline. As commodity prices surge in the aftermath of Russia’s invasion of Ukraine, more such moves become likely.”

“By far the most significant impact would come from any adjustment to bread subsidies. We think potential disruption to wheat supplies from Russia/Ukraine (which make up 85% of Egyptian imports) and rising costs increase the likelihood of this in the near term. Even a modest reduction in bread subsidies could be significant from an inflation perspective.”

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