Egypt GDP growth seen quickening in next 2 years

By Patrick Werr / Reuters
First Published: January 27, 2010

CAIRO: Egypt's economy will pick up this financial year and next, but will not grow as strongly as it did before the global financial crisis broke out in late 2008, a Reuters poll showed.

The survey of 15 economists suggested that gross domestic product growth will accelerate to 5 percent in the fiscal year that ends on June 30, followed by 5.5 percent growth in the year to June 30, 2011.

This is faster than any of the Gulf Arab states apart from Qatar, whose gas production is set for massive expansion in the coming years. Egypt is also expected to outperform neighbors Turkey and Israel.

"The pick up in growth will be due to the recovery in domestic and external demand and in foreign direct investment flows to Egypt," said Reham ElDesouki, an economist with Beltone Financial.

Egypt's economy was relatively unaffected by the global downturn last year as a result of five years of tariff cuts, the sale of many state companies, the liberalization of investment regulations and other reforms.

The economy was nonetheless hurt by a decline in tourism earnings, Suez Canal revenue and foreign investment. Growth fell to 4.7 percent last year after having sped along for three years at around 7 percent. The Egyptian government approved an LE 8 billion ($1.5 billion) fiscal stimulus in its budget that began on July 1, and another stimulus package of LE 11.2 billion is making its way through parliament.

Together they represent about 1.6 percent of gross domestic product (GDP). The stimulus is being directed mainly toward infrastructure projects such as roads, railways and water treatment.

Inflation is expected to be 11 percent in 2009/10 and 9 percent in 2010/11. Inflation was 10 percent in the year to June 2009 and 20.2 percent in the year to June 2008.

"We see that domestic demand will be below what we saw in 2006-2008 and the global inflation environment will be broadly favorable, not like 2007-2008, when commodity price growth was strong," said Simon Kitchen, an economist with EFG-Hermes.

The overnight lending rate is projected to be at 10 percent by the end of 2010 and stay there through 2011, up slightly from 9.75 percent now. It was 13.5 percent at the end of 2008.

The Egyptian currency is forecast to be LE 5.50 to the dollar at end-2010 and LE 5.60 to the dollar at end-2011. It is now LE 5.44 to the dollar. It was 5.51 pounds as of end-2008.