Last Updated: Wed Dec 21, 2011 16:36 pm (KSA) 13:36 pm (GMT)

Egypt’s economy to grow by 3.1 percent next year

Egypt’s economy, which has been hurt by the fallout from the Arab Spring, is predicted to improve in 2012. (Illustration by Farwa Rizwan)
Egypt’s economy, which has been hurt by the fallout from the Arab Spring, is predicted to improve in 2012. (Illustration by Farwa Rizwan)

Egypt’s economy will grow by only 1.8 percent this fiscal year and 3.1 percent next as it recovers slowly from the political upheaval that ousted president Hosni Mubarak and disrupted the economy, a Reuters poll showed on Wednesday.

The survey of 10 economists forecast that year-on-year gross domestic product (GDP) in the Arab world’s most populous nation would remain steady at 1.8 percent in the year to June 30, 2012, compared with the last fiscal year, but revised up from the 1.3 percent expected in the September poll.

Growth will then pick up to 3.1 percent in 2012/13, but still far short of 6 percent-plus growth rate that economists say Egypt needs to start creating enough jobs for its expanding population of 80 million people.

Egypt’s economy is reeling from a series of violent clashes against the ruling military council since a popular uprising ousted Mubarak in February that sent investors and tourists packing.

But economists say a clear timetable for a transfer of power to civilians could slightly bolster growth in the fiscal year 2012/13.

“We see that growth should pick up in the next fiscal year,” said David Cowan, economist at Citi.

“Once we are through the politics, through the elections and everything, one hopes that there is a return to more confidence that should start a slow pickup in investment and some recovery in the tourism sector.”

Tourism, a major source of revenue for Egypt, used to account for over a tenth of GDP before political turmoil deterred visitors. Egypt expects to earn only $9 billion from tourism in 2011, down by about a third on a year earlier.

Foreign direct investment (FDI) fell to $440.1 million in July-September from $1.60 billion a year earlier, helping to create a $2.36 billion deficit in the balance of payments versus a surplus of $14.7 million a year earlier.

“For us the whole battle is to get through all the elections and get a government in place which can start making more concrete policy decisions and then move forward from there,” Cowan added.

A flare-up of violent clashes in Cairo between police and protesters this week has marred a staggered parliamentary election that began on Nov. 28 and ends on Jan. 11, but the army has said a promised transition to civilian rule will go ahead.

Analysts say the most pressing economic threat is the slide in Egypt’s foreign reserves as tourism and export earnings suffer from the unrest and capital flees the country.

Reserves have tumbled from around $35 billion at the start of 2011 to about $20 billion at the end of November, and may in coming months reach levels where the central bank is no longer able to prevent a sharp, sudden depreciation of the Egyptian pound.

“They’ve run down their foreign exchange reserves, so effectively they have less and less savings to support the currency going forward,” Cowan said.

Pressure on the pound is expected to continue, with forecasts suggesting it will weaken to 6.30 pounds to the U.S. dollar by the end of June and to 6.50 by the end of June 2013 from a seven year-low of around 6.02 pounds now.

A big depreciation of the pound would put upward pressure on inflation, which is seen accelerating to 9.4 percent end-June before easing to 8.9 percent by the end of June 2013 on estimated lower global food prices.

Inflation climbed to 9.1 percent in the 12 months to November, up from 7.1 percent in October.

“We are forecasting global food and energy prices to be falling next year. But obviously inflation is going to remain very uncertain depending on what happens with the Egyptian pound as well,” said Said Hirsh, Middle East economist at Capital Economics.

“It could deteriorate a lot worse to say 8 pounds to the dollar if there is no agreement on external funding soon, which will obviously make inflationary pressure higher.”

Egypt, which turned down an offer of a $3 billion International Monetary Fund loan in June saying it did not need the funds, now says it may resume talks with the organization.

Comments »

Post Your Comment »

Social Media »