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Global economy crisis adds more challenges to Egypt in 2013

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The global economy faces fewer headwinds in 2013 compared to last year but is likely to experience a period of weak growth, according to experts.

By:Lamia Nabil

The global economy faces fewer headwinds in 2013 compared to last year but is likely to experience a period of weak growth, according to experts.

“Some good policy decisions have been made in the various corners of the world, including those of central banks,” said Christine Lagarde, managing director of the International Monetary Fund (IMF). “In 2013, they have to keep up the momentum.”

She called on Europe to enact the new tools which policymakers have recently devised, including Europe’s banking union. Lagarde also credited the United States with making significant progress on fiscal consolidation; an achievement that she said tended to be overlooked.

The global economy continues to experience the fallout from the 2008/2009 global financial crisis. International economic growth dropped to almost 3% in 2012, about half a percentage point since the crisis.

“We are looking now to the larger, faster-growing economies to pick up the slack,” said Peter Mandelson, trade commissioner for the European Commission. “We need them to be sources of liquidity, of demand, of investment, of confidence in the global economy.”

He expressed optimism in the longer-term. “I think we are going to see the American financial system reinventing itself,” said Mandelson. “And I think that we are seeing a more balanced and diversified multi-polar global economy, and we need new models of governance to reflect that new distribution of economic power in the world.”

Egypt and the global economy

Although Egypt is not a major economic power as far as the global economy is concerned, strategic geo-political factors ensure the country’s economic power in the Middle East as well as the rest of the world.

Egyptian GDP for the 2011/2012 fiscal year was EGP 402.1bn with an annual growth rate of 0.3%, compared to the 2010/2011 figure which only reached EGP 364.3bn with an annual growth rate of 5.5%.

“Any economic prosperity in the global economy will be directly translated into growth in our local economy,” said Dr. Rashaad Abdu, an Egyptian economist. “Our major source of revenue is tourism, almost 13% of our GDP. Tourism has suffered from political issues in Egypt as well as the deterioration of the economic situation in Europe,”

“Furthermore, as a market, Egypt is a small player, yet Egyptian exports will be negatively affected, especially to European countries due to countries’ financial deficits,” Abdu added.

He expressed concerns about increased inflation rates and the sharp narrowing of the balance of payments deficit, which add more fears to investors. The biggest challenge, according to Abdu, is how to restore growth and market confidence, and how to coax investors into financing projects again.

Global economy outlook

Business research organisation Conference Board, released a report last November outlining predicted economic trends for 2013.

Across more advanced economies, the report predicted 1.3% growth in 2013, compared to 1.2% in 2012. The slight uptick is largely due to the European region which is expected to return to 0.2% growth after the -0.6% contraction in 2012. US growth is expected to fall from 2.1% in 2012, to 1.8% in 2013.

In the medium-term, the report expects the US and other advanced economies to go some ways toward closing large output gaps—that is, the difference between current output and the level of output an economy is able to produce in a non-inflationary way, given the size of its labour force and its potential to invest in and create technological progress.

The current output gap is a result of weak demand due to the 2008/2009 global financial crisis. This development should allow the US to average 2.3% annual growth between 2013 and 2018 before falling to 2.0% sometime between 2019 and 2025. In the same two periods, Japan is expected to grow at 1.1% and 0.9%, respectively.

A more significant slowdown is expected for less mature economies over the next year and beyond. Overall, growth in developing and emerging economies is projected to drop from 5.5% in 2012 to 4.7% in 2013, with growth falling in China from 7.8% to 6.9% and in India from 5.5% to 4.7%. From 2019 to 2025, emerging and developing countries are projected to grow at 3.3%.

*Europe includes all 27 current members of the European Union, as well as Switzerland and Norway.

**Other advanced includes Canada, Israel, Iceland, Korea, Australia, Taiwan Province of China, Hong Kong, Singapore, and New Zealand.

***Southeast Europe includes Albania, Bosnia & Herzegovina, Croatia, Macedonia, and Serbia & Montenegro, and Turkey.
Source: The Conference Board Global Economic Outlook 2013, November 2012

 


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