Fitch Solutions expects that real GDP growth in Egypt will remain robust in the near future, hitting 5.5% in fiscal year (FY) 2019/20 – which began 1 July – only slightly below the 5.6% recorded in FY2018/2019.
“We note that this rate of expansion would be well above the 3.6% average recorded over the past decade and that it would also make Egypt a clear regional outperformer, given that our forecast for the Middle East and North Africa (MENA) weighted average growth stands at only 1.8% in 2019-2020,” Fitch Solutions added.
In its report Egypt Country Risk Report Q4 2019, Fitch said that Egypt’s investment will remain the largest contributor to growth this fiscal year, driven by fast-rising public spending on capital projects.
Fitch also expects that private consumption growth to remain on a slow uptrend owing to wage increases and falling inflation. Additionally, deteriorating global financial conditions could negatively impact Egypt’s access to foreign capital and dent economic growth.
The report explained that Egypt’s robust growth could still face headwinds from a deteriorating global macro outlook. “A more pronounced slowdown in global growth than we currently forecasted would weigh on Egypt’s economic outlook as well,” the report added.
Accordingly, external debt would become more costly to source as capital flows into emerging markets reverse, especially since the government is not intending to lean on IMF funding in FY2019/2020. This would put pressure on short-term public investment spending, thus clipping a central growth driver.
According to Fitch Solutions’ expectation to Egypt’s local currency, the report expects that the Egyptian pound will maintain a slow appreciatory trajectory against the US dollar over the remaining months of 2019 owing to an attractive carry rate.
The report pointed out that non-oil exports would also suffer, as would remittances from Egypt’s foreign workers to some extent. Egypt still has a large growth buffer – that is, it would be far less likely to slip into recession in a global downturn – compared with some other major emerging markets leaving more room to absorb the shock of a potentially deep global slowdown.
Furthermore, Fitch highlighted that investment will contribute most to growth this fiscal year. The government is pressing ahead with capital investments at a rapid pace, using newly gained resources unlocked by fiscal reforms and spurred on by a large structural infrastructure deficit (see ‘Egypt Infrastructure Report Q3 2019’, June 12).
Government capital expenditure rose by 30.0% YoY in real terms in July 2018 to May 2019, up from 10.3% YoY in the preceding period. Accordingly, our Infrastructure team forecasts the construction industry to grow by an annual average of 10.3% in 2019-2020, the second-highest rate in the region, according to Fitch.
The report said, “Egypt currently has some $31bn worth of projects under construction, driven by the energy and transport sectors as well as residential, industrial, and commercial projects in new cities. Moreover, the projects are currently in the planning stages and are valued at a staggering $157bn, equivalent to 51.4% of GDP – both the highest rates in the MENA region. While the realisation of this pipeline will depend on many factors -such as financing and market conditions. We are confident about Egypt’s investment outlook in the next five years and expect it to be a significant driver of real GDP growth.”
