The International Monetary Fund (IMF) upgraded its forecast for Egypt’s growth to 5.9% in FY2021/22, up from the 5.6% that had been projected in January 2022 and the 5.2% that had been projected in October 2021.
However, the IMF forecasted Egypt’s growth to decline to 5% in FY2022/23 in its latest world Economic outlook.
Responding to Daily News Egypt’s question on the reasons behind the IMF’s upgraded projection for Egypt, Malhar Nabar — Division Chief of the Research Department — said that this upgrade is due to the strong performance in the first half (1H) of the FY.
Meanwhile, the IMF raised its expectations for the average inflation rate this year to reach 7.5%, up from October 2021’s 6.3%. The fund also improved its forecast for the unemployment rate this year to 6.9% from 9.2%.
In terms of Egypt’s current account balance, the report expects it to reach -4.3% in FY2021/22 instead of the -3.7% forecasted in October 2021.
Notably, the Egyptian government is working with the IMF on designing a new loan-backed programme to support the Egyptian economy and address the ongoing challenges against the severe repercussions of the war in Ukraine on the globe.
Petya Koeva Brooks — Deputy Director of the Research Department — said that the war has been a major setback and major shock for the Egyptian economy, perhaps not so evident when you look at the numbers at first glance, as already the IMF has upgraded its projection for Egypt’s growth in the current FY.
She explained that this is entirely because of the strength of the Egyptian economy prior to the war, whereas at the same time, the IMF has downgraded its forecast for Egypt’s growth in 2023 to 5%.
“We have already seen the impact of the war… We’ve seen capital outflows and we’ve seen the swift reaction of the authorities in terms of raising interest rates, allowing the currency to depreciate and also allowing some drawdown of reserves. Another channel through which we’ve seen the impact is through high commodity prices and high food prices,” she said.
“In particular, Egypt is a major importer of wheat. And for all of these reasons that we’ve seen, the authorities have requested the IMF’s support, and our team has been engaging and is in the process of talking to the authorities about the best way forward.”
As for the Middle East and Central Asia, the report expects that the region’s real GDP would grow by 4.6% and 3.7% in 2022 and 2023, respectively.
Concerning the world economy, compared to the IMF’s January forecast, the IMF has revised its projection for global growth downwards to 3.6% in both 2022 and 2023, 0.8 and 0.2 percentage points lower than in the January forecast, respectively.
Pierre-Olivier Gourinchas — Economic Counsellor and Director of the Research Department — said during the press briefing that the global economic prospects have been severely set back, largely because of Russia’s invasion of Ukraine.
He also said that this crisis is unfolding even as the global economy has not yet fully recovered from the pandemic. Even before the war, inflation in many countries had been rising due to supply-demand imbalances and policy support during the pandemic, prompting a tightening of monetary policy.
Moreover, the latest lockdowns in China could cause new bottlenecks in global supply chains. In this context, beyond its immediate and tragic humanitarian impact, the war will slow economic growth and increase inflation. Overall, economic risks have risen sharply, and policy trade-offs have become even more challenging.
Gourinchas added that inflation has become a clear and present danger for many countries. Even prior to the war, it surged on the back of soaring commodity prices and supply-demand imbalances. Many central banks, such as the Federal Reserve, had already moved toward tightening monetary policy. War-related disruptions amplify those pressures. We now project inflation will remain elevated for much longer.
The report also expects global inflation to record 5.7% in advanced economies and 8.7 % in emerging market and developing economies.
Gourinchas stressed that the uncertainty around these projections is considerable, well-beyond the usual range.
“Growth could slow down further while inflation could exceed our projections if, for instance, sanctions extend to Russian energy exports. Continued spread of the virus could give rise to more lethal variants that escape vaccines, prompting new lockdowns and production disruptions,” he explained further.
He also emphasised that in this difficult environment, national-level policies and multilateral efforts will play an important role, adding that the most immediate priority is to end the war.