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Thursday, 11 March 2021

Good news for economic growth in the second quarter of FY2020-2021

Egypt’s economy grew 2% in 2Q2020-2021, accelerating from 0.7% the previous quarter as the tourism sector contracted at a slower pace, Planning Minister Hala El Said said during cabinet's weekly meeting yesterday. Manufacturing and Suez Canal revenues — which had slumped thanks to the pandemic — also contracted more slowly than at the height of the pandemic in 1Q2020-2021, El Said said.

Growth during the first half of the fiscal year clocked in at 1.35%, a significant y-o-y drop from the pre-covid 5.6% growth rate recorded in 1H2019-2020, the minister said.

Logistics, agriculture, education, and healthcare continued to lead the rebound, achieving positive growth between July 2020 and January 2021, El Said noted. Growth rates in these sectors accelerated y-o-y after the government eased covid-19 restrictions in July, she said late last year.

The economy is expected to grow 2.8% this quarter, which wraps on 31 March, and 5.3% in the final quarter of the fiscal year ending 30 June, according to El Said.

On inflation: The government expects the annual urban headline rate to average between 4.8% and 6.8% this fiscal year, said El Said, while inflation figures released by state statistics agency Capmas yesterday showed a slight uptick to 4.5% in February from 4.3% in January.

PICKING UP WHERE WE LEFT OFF- Yesterday’s inflation reading — despite being below the lower band of the Central Bank of Egypt’s (CBE) 7% (±2%) target range — isn’t enough to give the CBE’s Monetary Policy Committee room to enact a rate cut before 3Q or 4Q2021, Arqaam Capital analyst Noaman Khalid told Bloomberg Asharq yesterday (watch, runtime: 6:22). Khalid points to higher oil prices and rising US treasury yields as two factors creating conditions that make a rate cut highly unlikely.

Egypt and other emerging markets “don’t have the luxury” of going in the opposite direction as US treasury yields, but Egypt’s carry trade seems safe for now, Khalid said Pharos’ Radwa El Swaify is of the same mind, telling us yesterday that EGP-denominated treasuries offer high returns at lower risk compared to other EMs. Look for the CBE to stick to open market operations as a priority for the next several months, Arqaam said in a research note yesterday.

Don’t expect fuel prices to increase here at home, either: Fuel prices will likely remain unchanged when the government’s fuel pricing committee meets in the next few weeks, Arqaam says. The Finance Ministry is expected to “undershoot the average Brent oil price assumption even if oil prices stay at USD 70/bbl for the coming four months,” which would tack on another EGP 16-18 bn to our fuel subsidy bill, the note says. Spending on fuel subsidies dropped 45% y-o-y in 1H2020-2021 to EGP 8.2 bn, Oil Minister Tarek El Molla said recently.

Also from cabinet yesterday:

  • Government employees moving to the new administrative capital will be getting relaxed payment terms to purchase homes.
  • State-owned payments platform e-Finance will provide a facelift to a government-run website where car owners can apply for financial support under a government scheme to swap out old cars for newer natural gas or dual fuel vehicles.

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