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Thursday, 14 May 2020

EBRD sees Egypt’s economy growing 3% next fiscal year after “sharp” slowdown in 2020

EBRD sees Egypt’s economy growing 3% next fiscal year after “sharp” slowdown in 2020: The European Bank for Reconstruction and Development (EBRD) expects Egypt’s GDP growth in FY2020-2021 to come in at 3% as disruptions from the pandemic weigh on growth during the first six months of the fiscal year, according to a Regional Economic Prospects report (pdf).

Egypt is expected to see 0.5% growth in the 2020 calendar year before recovering to 5.2% in 2021. Both figures outperform expectations for the rest of the Southern and Eastern Mediterranean (SEMED) region, with the exception of Lebanon, which is expected to bounce back to 6% growth next year from a stunning 11% contraction in 2020.

Tourism, FDI, global conditions weigh on growth: The lower growth projection for the next fiscal year is “due mainly to the weak outlook in the tourism sector, disruptions in global value chains, weaker demand from trading partners, and the slowdown in foreign direct investment.”

Next fiscal year’s growth will be concentrated in its second half, with economic recovery beginning in earnest at the beginning of calendar year 2021, while the remainder of 2020 is expected to be bogged down in economic disruption, Bassem Kamar, lead economist for the south and east Mediterranean, tells us.

With interest rates at a good place, private investments will lead growth next year: Private sector investments are expected to be the largest contributor to GDP growth in calendar year 2021, Kamar said in a chat yesterday. The return of private investment will be spurred largely by the Central Bank of Egypt’s (CBE) monetary easing, which has brought interest rates to a “very acceptable level” to unlock capex borrowing. “2020 was expected to be the year of high private sector investment, but then [the pandemic] happened, and now all of these investments are postponed to 2021,” he says.

What could help us unlock higher-than-expected growth: The biggest factor is to keep the spread of the virus that causes covid-19 under control and therefore allow business activity to pick up pace again, Kamar says. Once the wheels start turning again, growth will be spurred mostly by construction — including the ongoing construction of the new administrative capital and the Suez Canal Economic Zone — and renewed consumer demand for Egyptian products in domestic and international markets.

Recovering tourism from Europe, which is gradually reopening over the coming weeks, will also help drive growth. Kamar suggests that tourism inflows to Egypt could get a boost by sending a reassuring message to potential visitors that we understand the risk and are taking the necessary steps to address those risks. For example, he suggests a partnership with the World Health Organization that would see the organization certify certain destinations and hotels — akin to a TripAdvisor top-rated sticker — that tells tourists it’s safe to visit.

What could push our growth figures lower: Economic growth will take a further hit if new cases accelerate and require an intensification of the current lockdown, or if there is a second wave of infections further down the road that necessitates new restrictions.

Inflation likely to stay low, unemployment to normalize in mid-2021: As for the rest of Egypt’s fundamentals, Kamar doesn’t see much reason to expect an uptick in inflation, with deflationary pressures keeping the balance in check. The EBRD expects inflation to remain comfortably within the CBE’s target range of 9% (+/- 3%) — and could hover around the lower bound, he says. The unemployment rate will normalize in Egypt to December 2019 levels somewhere around mid-2021, Kamar expects.

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