|23 January, 2020

Egypt's economic outlook improves in 2020

In October, analysts had projected the economy would expand by only 5.5% in 2019/20 and 5.7% in 2020/21

A woman buys traditional handmade sweets at a street market ahead of Mawlid al-Nabi, the birthday of Prophet Mohammad, in Sayeda Zainab neighbourhood in Cairo, Egypt November 18, 2018. Image used for illustrative purpose.

A woman buys traditional handmade sweets at a street market ahead of Mawlid al-Nabi, the birthday of Prophet Mohammad, in Sayeda Zainab neighbourhood in Cairo, Egypt November 18, 2018. Image used for illustrative purpose.

REUTERS/Mohamed Abd El Ghany

CAIRO  - Egypt's economy is likely to grow 5.8% in the current fiscal year ending on June 30, and 5.9% in 2020/21, according to a Reuters poll - an improvement on the previous poll three months ago.

The median of forecasts from 20 economists polled from Jan. 7 to 21 aligns with the 5.8%-5.9% growth forecast by the finance ministry for 2019/20 on Monday. In 2018/19, GDP grew 5.6%.

In October, analysts had projected the economy would expand by only 5.5% in 2019/20 and 5.7% in 2020/21. 

"We expect a slight increase in household consumption accompanied by higher exports and lower imports," Naeem Brokerage Allen Sandeep said, explaining the more optimistic outlook.

Egypt's economy has been boosted in the last three years by an upswing in tourism, strong remittances from Egyptian workers abroad and recently discovered natural gas fields coming onstream.

But the growth has mainly been driven by the state sector, with the non-oil private sector having contracted every month this fiscal year apart from July, according to the IHS Markit Egypt Purchasing Managers' Index (PMI).

In fact, non-oil private sector growth has expanded in only six individual months since a 2016 economic reform programme tied to a $12 billion three-year International Monetary Fund accord, according to the PMI data.

Completed in November, 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.

INFLATION SET TO INCREASE

The analysts expected Egypt's annual urban consumer price inflation to slow to 6.8% in 2019/20 but to rebound to 7.5% in 2020/21 and 8.0% the following year. In July 2017, months after the IMF-inspired austerity measures kicked in, inflation peaked at 33%.

Egypt reported that inflation had increased by an annual 7.1% in December after having slowed to as little as 3.1% in October.

"December 2019's inflation print confirms our expectation that prices will continue to accelerate in months to come as favourable base effects diminish," said Callee Davis of NKC African.

The median analyst forecast had the Egyptian pound weakening to 16.10 to the U.S. dollar by the end of June from 15.80 on Thursday. It will slide further to 16.50 by June 2021 and 17.08 by June 2022, the analysts predicted.

Davis forecast that the currency's strong appreciation over the last 12 months would begin to reverse this coming April 2020, when a $1 billion Eurobond repayment is scheduled.

The poll also suggested that the central bank would lower its key overnight lending rates, currently 13.25%, to 11.75% in 2020 and 10.75% in 2021 and 2022.

Last week, the bank left its overnight interest rates unchanged after cutting them at each of its previous three meetings.

(Polling by Md Manzer Hussain in Bengaluru; Reporting and writing by Patrick Werr; Editing by Kevin Liffey) ((patrick.werr@thomsonreuters.com;))

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