CAIRO: Consumer confidence in Egypt dropped sharply in the first half of 2010 to reach to 45.5, down from 59.5 in the second half of 2009, according to a report.
Though seemingly pessimistic news, it was noted that consumer confidence was even lower for the same period last year, attaining only 32.3 on a scale of 100, according to the Euromonitor International report released this week, citing a MasterCard survey.
However, the morose Egyptian sentiment is expected to carry through until the end of the year.
Such an indicator is critical to any actor in the economy, as consumer expenditure represented 86.6 percent of the country’s GDP in 2009, up from 74.2 percent in 2004, the report notes.
It is explained that the global economic malaise, which has been prolonged by a tepid recovery, is the explanatory factor in the lack of consumer confidence.
As the report notes, the Egyptian financial system, which is largely insulated from the world, as many analysts over the past months have highlighted, was unaffected by the downturn. However, the crisis’ knock-on effects stem from fluctuating commodities prices such as oil as well as tourism and foreign direct investment (FDI) inflows.
The report says that the domestic consumption has been “stimulated” and “sustained” via government stimulus packages as well as targeted monetary policies. This has simultaneously been offset by a low saving ratio, “nosediving” from 18.6 percent in 2004 to 5.5 percent in 2009, which has translated into cautious consumers at a time when consumer confidence is low and unemployment high.
Government stimulus packages aimed at infrastructureabound, which since 2008 have been worth around $5.4 billion. Projects have included water, waste projects, roads and bridges. The projects are said to have spurred job growth, which in theory should boost consumer confidence and, in turn, spending, as well.
The report stated that during the first quarter of 2010, unemployment marginally fell from 9.4 percent to 9.1 percent from the previous quarter.
Equally noted was a jump in employment in telecommunications as well as construction, with both moving up year-on year to 13.2 percent from 12.0 between the second quarter of 2009 and 2010.
A targeted monetary policy has been coupled with the stimulus packages as a second tool to ratchet up consumer confidence, the report explains, which invariably drives consumer spending.
To this end, the Central Bank of Egypt, for seven consecutive times, has maintained its benchmark interest rate at a four year low, with overnight deposits at 8.25 percent and overnight lending at 9.75 percent.
This past March, the government announced a plan to incentivize companies to attract LE 66 billion in agricultural and industrial investments to food factories and logistics centers, which is expected to create 750,000 jobs.
Furthermore, the government aims to draw $10 billion this year in FDI emanating from Asia, which will be spent in the telecommunications, financial services and software sectors.
The report says that through these conjoined efforts, GDP growth should top 5 percent this year and 5.5 percent next year — rates which will be stronger than most other key MENA economies.