Egypt’s economic conditions should have started H2 of fiscal year (FY) 2022 (January–June 2022) on strong footing, following robust economic performance in H1, according to preliminary national accounts data, FocusEconomics Consensus Forecast May 2022 highlighted.

FocusEconomics panelists project GDP to expand 5.6% in FY 2022, which is up 0.2 percentage points (PP) from last month’s forecast, and 4.8% in FY 2023. Inflation jumped to a near three-year high of 10.5% in March (February: 8.8%). Inflation is seen accelerating further this calendar year due to elevated food and energy prices, which will be exacerbated by a potential prolonged conflict in Ukraine. Inflation is now seen remaining above the upper bound of the Central Bank of Egypt’s 5.0–9.0% target range this year. Our panelists see inflation averaging 10.7% in CY 2022, which is up 1.8 percentage points from last month’s forecast, and 8.9% in CY 2023. At its most recent meeting on 21 March—originally scheduled for 24 March—the Central Bank of Egypt (CBE) raised its overnight deposit, overnight lending and main operations rates by 100 basis points, bringing them to 9.25%, 10.25% and 9.75%, respectively.

FocusEconomics panelists project the overnight deposit rate to end CY 2022 at 11.38% and CY 2023 at 11.45%. On 6 May, the Egyptian pound traded at 18.48 per USD, marking a 0.9% depreciation from the same day a month earlier. The EGP seemingly stabilized following the Central Bank’s move to allow the currency to depreciate in March.

The Egyptian pound is seen depreciating from current levels by the end of the year. Our panel sees the pound ending CY 2022 at EGP 18.57 per USD, and CY 2023 at EGP 19.15 per USD.

Furthermore, FocusEconomics panelists projected total investment to grow 12.7% in FY 2022, which is down 1.7 percentage points from last month’s forecast, and 7.5% in FY 2023.

FocusEconomics panelists said that industrial output expanded in January–February at only a marginally slower pace than in the previous quarter. That said, dynamics should have slowed halfway through Q3 and into Q4 FY 2022, following the outbreak of the war in Ukraine. The non-oil PMI revealed conditions deteriorated sharply in March–April and employment levels decreased, which coupled with the continued buildup of price pressures will weigh on the external balance and spending. That said, a $25bn pledge of financial assistance from Gulf allies in April will help support the balance of payments. Moreover, the Suez Canal—the government’s main source of foreign reserves—saw record high revenues in April.

The report noted: “On 21 April, Fitch Ratings affirmed the country’s ‘B+’ rating with a stable outlook, citing the successful fiscal and economic reforms. GDP growth is seen quickening in the current FY, before decelerating in FY 2023 (July 2022–June 2023). Additionally, raising commodity prices will weigh on the external balance despite support from Gulf allies. Measures deployed to mitigate the impact of the continued buildup of inflation will widen the fiscal deficit. Potential food scarcity could lead to the outburst of domestic social tensions.”

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