Egypt’s GDP growth to reach 5.6% in FY 2019/20, inflation to average 8% in CY 2020: FocusEconomics

Daily News Egypt
3 Min Read

Egypt’s GDP growth slowed marginally in the first quarter (1Q) of the fiscal year (FY) 2019/20, which ran from July to September, according to preliminary financial indices, FocusEconomics said in a report.

FocusEconomics panellists expect a GDP growth of 5.6% in FY 2019/20, which is up 0.1 percentage points from last month’s forecast. For FY 2020/21, our panellists forecast an economic growth of 5.5%.

Although the comprehensive financial data are not yet available, Egypt’s private consumption was likely strong, given that inflation cooled significantly in 1Q20 and that the unemployment dropped to 7.5% in 4Q19, the report said.

Moreover, upbeat bank lending in the first two months of 1Q20 suggests fixed investment held up well, while recent improvements in the ease of doing business in Egypt, as highlighted by the World Bank’s new Doing Business Report, should have supported investment activity.

FocusEconomics panellists expect total investments to grow 11.5% in FY 2019/20, which is down 0.1 percentage points from the last month’s forecast, and 10.3% in FY 2020/21.

The report forecasts that economic growth should stabilise in FY 2019/20. Particularly, higher

government spending, improved ease of doing business and lower interest rates should support fixed investment growth.

However, the report indicates that weak global growth will weigh on the external sector, while security risks could deter tourist arrivals.

In regard to monetary conditions, inflation cooled to 3.1% in October from 4.8% in September, marking the lowest reading since October 2005. The report indicates that moving forward, price pressures should pick back up on lower interest rates and government fuel subsidy spending.

“Our panellists expect inflation to average at 8% in 2020, which is down 0.4% from last month’s forecast, and 8% again in 2021,” the report said.

Accordingly, the report forecasts the overnight deposit rate to end 2020 at 10.13% and 2021 at 9.58%.

Commenting on the outlook, Farouk Soussa, MENA economist at Goldman Sachs, said, “Going forward, our inflation outlook projects the headline number climbing back towards CBE’s inflation target of 9.0% y-o-y (±3pp) by the year-end, as the favourable base effects wear off.”

The report cites that the Egyptian pound traded at EGP 16.11 per US dollar. However, FocusEconomics expect the pound to depreciate going forward after strengthening significantly this calendar year, partly as the CBE is expected to continue easing monetary policy. “Our panel sees the pound ending 2020 at EGP 16.91 per US dollar and 2021 at EGP 17.94 per US dollar,” the report indicates.

Share This Article