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Thursday, 25 October 2018

Capital Economics sees Egypt growth accelerating — and likes the idea of letting the EGP slide a bit through 2020

** #2 Capital Economics sees Egypt growth accelerating — and likes the idea of letting the EGP slide a bit through 2020. Capital Economics sees Egypt’s GDP growth accelerating to 5.5-6% between 2018-2020, up from 5.0% last year, “as inflation falls, interest rates are cut and the pace of austerity slows.” Egypt has been the region’s top performer this year and is seen maintaining its strong momentum well into 2019 and beyond, supported by the drive for reform and the resolve to consolidate fiscal policy and reduce debt levels, according to their latest report.

A tiny bit of deval (like 10% through 2020) would be a good thing: Supporting this vision are expectations that pressure from the IMF will likely “force the authorities to loosen their grip on the currency,” allowing the EGP to weaken slightly to around EGP 20 per greenback by 2020, which would help “maintain Egypt’s external competitiveness and sustain robust export growth.” That, coupled with tourism recovery and new income from natural gas resources, should in turn help plug the current account deficit and adjust the country’s balance of payments.

The outlook for inflation also seems promising, with levels seen cooling to around 10% by 2019 and 7.5% by 2020, down from a current 14%. “The central bank is likely to resume its easing cycle and we think that interest rates will be cut by 550bp by end-2019…looser monetary policy will boost credit growth and investment.”

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