The Egyptian economy is expected to witness fair, though slow, improvements during the first months of 2017, accompanied by a general state of stability, according to the March 2017 “FocusEconomics Consensus Forecast” report for the Middle East and North Africa region.
The expected slowdown of the economy in fiscal year (FY) 2016/2017 is a result of the private consumption being severely impacted as high inflation rates greatly affect consumers’ purchasing power, the report said. While inflation stood at 28.1% in January, FocusEconomics expects it to reach an average of 20.2% throughout 2017 and 14.0% in 2018.
FocusEconomics noted that operating conditions among Egyptian business companies have deteriorated throughout February 2017 compared to January, especially with the elevated inflation and subdued internal demand. Exports have also declined marginally, with business firms likely benefiting from an increase in competitiveness as a result of the devaluation of the pound. “Firms have also observed a further rise in the cost of imports, which were passed on to consumers in the form of higher output charges,” the report said.
In February, Emirates NBD Egypt’s Purchasing Managers’ Index (PMI) increased from 43.3 in January to 46.7 in February. Despite the continued decline, the PMI rose to its highest level since August 2016, marking the third consecutive increase since the implementation of the economic reforms in November 2016.
The “FocusEconomics Consensus Forecast” report expected the Egyptian gross domestic product (GDP) to expand by 3.4% in FY 2016/2017, which is an unchanged prediction from February’s forecast, and to expand by 3.8% in FY 2017/2018.
In regards of investments and the inflow of foreign currency to Egypt, the report said, “investors are venturing back to the country, and dollars have come flooding back into the financial system.” Total investments are expected to grow by 4.5% in FY 2016/2017, and increase by 5.3% in FY 2017/2018. In the near future, the economy should benefit from greater foreign investments and improved competitiveness, the report said.
FocusEconomics believes that the Central Bank of Egypt (CBE) is currently facing the dilemma of bringing down inflation without derailing economic growth after inflation skyrocketed following the decision to free float the Egyptian pound in November 2016, according to FocusEconomics. It believes, however, that the CBE affirms that the negative overflows of the economic reforms will subside gradually in the coming months and that no further hikes are expected as the CBE increased all of the main interest rates by 300 basis points on 3 November 2016.