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Reading: Egypt growth rates expected to take a nose dive, shows poll
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Dailynewsegypt > Blog > Politics > Egypt growth rates expected to take a nose dive, shows poll
Politics

Egypt growth rates expected to take a nose dive, shows poll

Sherine El Madany
Last updated: 2015/08/07 at 11:52 AM
By Sherine El Madany 6 Min Read
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CAIRO: As the hot waves of the US subprime crisis continue to melt down the global economy, many are questioning Egypt ability to maintain its record high growth rates in the current fiscal year.

While statements from government officials point to the affirmative, a recent Reuters opinion poll predicts Egypt’s economic growth to ease below the government’s target of more than 7 percent in the current fiscal year 2008/09.

Reuters’ interviews with 11 economists between July 16 and 22 showed that real gross domestic product (GDP) is expected to grow between 4.8 and 6.8 percent in the 2008/2009 fiscal year, which started on July 1, dragged by a slowdown in investment and private consumption.

Ania Thiemann, senior Middle East and North Africa analyst at the Economist Intelligence Unit, told Reuters she expected real GDP growth to ease to 6.7 percent from an estimated 7.1 percent in 2007/08.

“With the turmoil in international financial markets, the cost of capital is rising, and even though a lot of investments in Egypt are boosted by the high liquidity in the Gulf, I can’t see that continuing, she said in the poll.

EFG-Hermes Economist Mohamed Abu Basha also said a slowdown in private consumption growth in the first quarter of 2008 to 2 percent from 6 percent in the previous quarter was likely to hurt economic growth.

“Inflation is eroding the growth of private consumption, he explained.

The Cairo-based regional investment bank recently downgraded its forecast for GDP growth in the current fiscal year to 6.2 percent from 6.6 percent.

If these forecasts come to pass, this lower rate will be a blow to government’s relentless attempts to sustain last year’s 7.1 percent growth rate, which has been the pride and glory of Cabinet leaders.

Meanwhile, government officials recently said Egypt is on track to match last year’s growth, with foreign investment outweighing any negative effects from a global slowdown.

“The most important factor is to sustain our 7 percent growth rate because it will bring in new resources, Finance Minister Youssef Boutrous Ghali said repeatedly.

Cabinet spokesman Magdy Radi said last week the government aimed for growth to exceed 7 percent, Reuters reported. Counting on Egypt’s soaring foreign direct investment, the government has said real GDP should expand at a fraction over 7 percent during the fiscal year 2007/08 that ended on June 30.

The economy grew at an annualized rate of 7.5 percent in the January-March quarter of 2008, compared with 8.1 percent in the October-December quarter of 2007.

However, attempts to maintain record high growth rates have weighed on the country’s inflation rate, with urban inflation surging to 20.2 percent in the year to June, from 19.7 percent a month earlier, a 19-year record high rate.

Spiraling food costs have spurred public unrest over low salaries in Egypt, a major food importer where about one-fifth of the population of roughly 80 million lives on less than $1 per day.

Attempting to curb inflationary pressures, the Central Bank of Egypt has raised its key short-term interest rates four times this year, which on the flipside contributed to a negative international outlook on Egypt’s banking sector.

“Inflation will remain high in 2008 and the monetary policy tightening will have an impact on private consumption, Abu Basha was quoted as saying in the Reuters poll.

Dorothee Gasser-Chateauvieux, a senior economist at ING bank in London, told Reuters that real GDP growth was likely to be at 4.8 percent in the 2008/09 fiscal year, dragged down by high inflation and “the rapid deterioration of the external account component of GDP.

While the Reuters poll estimates the 2008/09 fiscal year growth rates between 4.8 and 6.8 percent, Angus Blair, head of research at Beltone Financial, told Daily News Egypt the 2008/09 growth rate will probably be at the top end of that range.

“It [current year’s growth rate] will flip a little, but Egypt will still see quite strong growth rates, he said. “In a world where few countries see strong growth, Egypt’s rates remain quite strong.

Still, Blair expects Egypt will mirror global slowdown in growth rates but to some degree. “We’ll see an effect, absolutely, but not as directly as other countries.

“Despite inflation, I am bullish on the parameters of the economy. He cited the government’s “strong forward commitment for foreign direct investment as well as private investment, particularly in sectors such as construction that absorb large labor force.

“All the key factors for growth remain quite strong, he said.

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