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Sunday, 25 April 2021

Growth forecasts are (largely) holding steady

Egypt’s economy is expected to close out the state’s 2020-2021 fiscal year having grown 2.9%, according to a Reuters poll of 23 economists. This is a very slight upwards revision from the 2.8% from an earlier Reuters poll in January but is still short of the 3.3% projected by the government and is significantly lower than the 6% pre-covid forecast.

The familiar culprit: “We expect slashed tourism to be the main drag on the economy” in the fiscal year ending 30 June, said Garbis Iradian, chief economist at the Institute of International Finance. Monthly tourism revenues are estimated to have plunged by as much as 92% during 2020 due to the pandemic, with Egypt having recorded USD 14 bn in foregone revenue.

A tourism recovery in next fiscal year will see growth return to a 5% clip before accelerating to 5.5% in FY2022-2023, according to the poll. The government’s draft budget approved last month forecasts growth between 5.4% and 6% in FY2021-2022.

Annual urban inflation for the current fiscal year is expected to come in at 4.8%, down from the 5.6% predicted in the last Reuters poll in January, putting it just below the amended target rate of 7% (± 2%). Inflation is then expected to accelerate to 6.4% in FY2021-2022, then 6.2% in FY2022-2023. “We expect inflation to normalize around a long-term average of 9%,” said HC Securities’ Monette Doss, who expects a surge in prices fueled by increased consumption and a rise in international oil prices will drive prices upwards. Food prices saw a monthly uptick of 1% last month off the back of Ramadan, pushing annual headline inflation to 4.8%, while annual urban inflation stayed at 4.5%.

Interest rates are expected to hold steady until at least the start of FY2021-2022 this July, most analysts said (echoing the results of our own poll above), with the Central Bank of Egypt’s Monetary Policy Committee expected to decide to cut rates by 25 bps during its meeting on 17 June, with a possibility of a further rate cut to 8.25% in 2022, respondents said.

The EGP could ease slightly against the greenback, reaching EGP 15.90 / USD 1 by the end of 2021, and dropping further to EGP 16.20 by the end of 2022 and EGP 16.74 by the end of 2023.

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