Focus Economics expects inflation to average 22.3% in 2017

Hisham Salah
4 Min Read

In its consensus forecast for the Middle East and North Africa region for April, Focus Economics participants expect inflation in Egypt to average 22.3% in 2017, up 2.1% from last month’s projection, and 13.9% in 2018.

“Annual average inflation rose from 15.3% in December to 17.1% in January, reaching the highest figure in over seven years,” the statement added.

The statement said that the Egyptian government continues to walk a tightrope as it attempts to reignite its economy and improve its external position while easing tensions among frustrated Egyptians, who have borne the brunt of the government’s measures.

The report added that as painful as the reforms are to the average Egyptian, the respectable pace of reform implementation observed so far has granted the country support from international institutions and has led to a hasty return of foreign investors to the country.

The latter group is now expected to benefit from the belated approval of an investment law that will tackle bureaucracy and cut red tape, Focus Economics noted.

Meanwhile, the country’s cabinet approved the 2017/18 budget on 29 March. The draft envisages a decline in the fiscal deficit to 9.1% of GDP—a whole percentage point above the International Monetary Fund’s (IMF) forecast for the year.

Analysts expect the GDP to expand 3.0% in fiscal year (FY) 2017, which is down 0.4 percentage points from last month’s forecast. For FY 2018, the panel sees growth accelerating to 3.8%.

Economic growth picks up in October-December period

Focus Economics said that GDP increased an annual 3.8% in the October-December period (which is Q4 of calendar year 2016 and Q2 of Egypt’s 2017 fiscal year), according to the Ministry of Planning. Q4’s result marked an uptick compared to the 3.4% increase in Q3 but came in below the 4.0% expansion observed in the same quarter last year.

Although comprehensive data has not been released, the relatively meagre expansion was likely the result of deteriorating economic conditions among Egyptian households.

It added that authorities’ efforts to improve the country’s weakened external position, which included the flotation of the pound and the scrapping of multiple subsidies, have heavily dragged on private spending.

Inflation has sky-rocketed, imported goods have become difficult to come by, and basic goods—previously heavily subsidised—are now eating away at a sizeable part of the Egyptians’ budget. Likewise, government spending likely moderated in the quarter on the back of measures aimed at staunching the country’s soaring fiscal deficit. Conversely, investment growth is expected to have gathered momentum as investors make their way back into the country following years of uncertainty.

However, Focus Economics Consensus Forecast panellists expect the economy to expand at a more moderate pace of 3.0% in FY 2017, which is down 0.4 percentage points from last month’s forecast. For FY 2018, the panel sees economic growth at 3.8%.

CBE stays put for fourth consecutive meeting as inflationary pressures start to fade

The weakness of the Egyptian economy and a sizeable interest burden on the government suggest that, under the premise that inflation peaks this year, the Central Bank of Egypt (CBE) could lower rates slightly. A high interest burden is weighing particularly on the government’s plan to rein in its fiscal deficit, according to the statement.

Focus Economics Consensus Forecast panellists expect the overnight deposit rate to end the year at 16.42% in 2017. For 2018, panellists see the overnight deposit rate at 14.60%.

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