Slow tourism recovery will weigh on GDP this year, but we’ll bounce back
Egypt’s economy will grow 2.4% this fiscal year “amid sluggish global tourism recovery and weak domestic demand,” but will accelerate to 4.1% in FY2022-2023, the Economist Intelligence Unit (EIU) said in its January report. The forecast for the current fiscal year is below the lower end of the Finance Ministry’s recently updated forecast, which targets a range of 2.8-4%. The EIU expects real GDP growth to rise over the next three fiscal years, peaking at 5.7% in FY2024-2025 before cooling off slightly to 5.2% in FY2025-2026.
The caveat: The recovery in vital sectors such as tourism — accounts for 9.5% of employment and 5.5% of GDP — will “depend heavily” on how consumer demand in the EU recovers and a speedy vaccination program. The EIU expects a large-scale rollout of vaccines around the world in 2Q2021 in developed economies, while the rollout of vaccines “at scale” in middle-income and emerging economies is unlikely to happen before 2022. This pace suggests the global “mass coverage” milestone will only be hit by the end of the year.
The government will likely keep in place fiscal and monetary support measures for the tourism sector while withdrawing it from other sectors as the pandemic begins to taper off in 2H2021, the report predicts. While state coffers “will be tested” in their ability to roll out more relief after having raised the minimum wage and pensions, as well as hiking the exemption threshold for income taxes, other “pandemic-related tax-relief measures and tariff cuts” will be rolled back to rebuild public finances, the report says.
OTHER INDICATORS: The EIU sees Egypt’s fiscal deficit widening to 8.5% of GDP this fiscal year, sees inflation “subdued” this year at about 5.9%, and sees the EGP strengthening by 2025, although it will be susceptible to “bouts of volatility” this year from “negative sentiment towards emerging economies in global financial markets, or to a weakening of the current-account position.” The EIU expects the EGP to weaken slightly in FY2021-2022 before the FX rate settles at EGP 15.52 / USD 1 in FY2024-2025.