Fitch Solutions raises projections for Egypt’s GDP growth to 6.59% in 2022

Fitch Solutions has on Sunday raised its projections for Egypt’s real GDP growth in 2022 to 6.59 percent, from 6.23 percent it expected a month ago. This is the fourth month in a row Fitch Solutions updates its projections for Egypt.

According to its updated report on MENA economic outlook, Fitch has maintained its expectations for the North African country’s inflation rate at 13.2 percent through end of 2022 for the third consecutive month.

The report also expected the Egyptian pound to continue to weaken in coming weeks, ending the year close to 21 pounds against the U.S. dollar, driven by the war in Ukraine and the country’s actions to stabilise the local market, including raising interest rates by three percent (300 bps).

“We expect that depreciatory pressures on the majority of MENA currencies, that are not pegged to the U.S. dollar, will persist in the next three to six months. Aside from country specific factors, stronger for longer U.S. dollar will be the main source of downward pressure on the currencies in the region.” the report explained.

“Our America’s team expects the U.S. dollar Index (DXY) will continue to appreciate, likely peaking over Q422 and Q123, driven by a hawkish US Fed and rising risk aversion. This will weigh on the Egyptian pound and exacerbate domestic pressures,”

The report also said that as the gradual adjustment of the currency is still holding, a strong U.S. dollar and delays in reaching an IMF loan deal have led to a faster depreciation than it had expected.

These factors, along with an overall shortage of U.S. dollars in the local market, are expected to continue to maintain pressure on the Egyptian currency, the report added.

“Indeed, demand for U.S. dollars on the black market will persist from individuals looking to hedge against a weaker pound and from businesses looking to finance their imports,”

Further, the report expected that official and informal market rates will converge reaching 21.5 pounds against the U.S. dollar before the pace of the depreciation slows.

“By then, the strength of the dollar will peak, the Egyptian economy will stabilise and capital inflows (FDI/portfolio inflows) start to materialise. The U.S. dollar trading price will end 2023 at EGP 22,”