Egypt’s economic growth accelerates, but less than govt hopes – poll

Egypt’s economic growth rate is set to accelerate to 4.5 per cent in the current fiscal year, higher than in recent years but lower than the government projects, a Reuters poll forecast Thursday.

After more than four years of sluggish growth brought on by political upheaval, Egypt’s economy has recently shown signs of revival. The country’s 2015/2016 budget projects growth of five per cent – better than the poll.

Growth reached three per cent in the third quarter of the 2014/2015 fiscal year, which ended in March, compared with 2.5 per cent in the same period a year earlier, the planning ministry said in July.

“We think Egypt’s economic recovery remains on track, despite some softness in early 2015. Public-sector investment initiatives are an important driver of our outlook this year and next,” said Nemr Kanafani at National Bank of Kuwait. “Still, economic growth has been hampered by bottlenecks in the energy sector and availability of foreign currency.”

Before the 2011 uprising, the economy grew about seven per cent annually for several years. But even that pace was barely enough to produce work for the large number of Egyptian youths entering the job market.

Unemployment among those 15 to 29 years old was 26 per cent in the second quarter of 2015 and 44.6 per cent for those holding a university degrees, the statistics agency said. The overall unemployment rate dipped to 12.7 percent in the second quarter from 13.3 per cent in the same period last year.

GULF AID

Billions of dollars in aid from Gulf states have kept Egypt’s economy afloat for the past two years, but that aid is not expected to continue.

The government has said it is now looking to its Gulf partners for new investments rather than aid as it balances restoring growth with inflation and a swelling budget deficit.

Analysts polled lowered their forecasts for the consumer price index for the 2014/2015 fiscal year to 10.4 per cent from 10.8 per cent in the previous poll. They expected it to ease to 9.5 per cent in 2015/2016.

Egypt’s inflation rates dropped markedly in July as food prices and the effects of removing energy subsidies the year before wore off, the central bank said earlier this month.

Urban consumer inflation fell to 8.4 per cent in July from 11.4 per cent in June. Core annual inflation dropped to 6.49 per cent from 8.07 per cent the previous month.

Some analysts have said lower inflation rates will give the central bank the freedom to cut key rates and thereby stimulate investment and growth.

Only a couple of poll respondents had a view on the central bank’s likely moves but they said it was likely to be downwards. The Egyptian pound is also expected to weaken over the next few years.