Global and domestic economic activity in 2020 is expected to be negatively affected by the outbreak of the COVID-19 pandemic and its containment measures, the Central Bank of Egypt (CBE) said in its first monetary policy report for 2020 issued on Wednesday.
The report stressed that the severity and persistence of the shock will depend on the prevalence and intensity of the ongoing crisis, adding that the structural and stabilisation measures are expected to lessen the impact of the disruption on the most vulnerable and help support the recovery in case the COVID-19 crisis is contained.
It also expected international food prices relevant to Egypt's consumption to decline in 2020 more strongly compared to the previous monetary policy report, before increasing slightly in 2021.
Furthermore, according to the report, Brent crude oil prices incorporated in the domestic inflation outlook are expected to remain subdued driven mainly by low global demand due to lockdown measures imposed in many countries, even after OPEC and non-OPEC member countries reached an agreement to cut daily production by 9.7 million barrels.
For the domestic market, the report said that domestic prices for some fuel products were reduced in April with a magnitude that allows for the savings to be utilised in supporting higher costs expected from facing the crisis, as per the announcement by Egypt’s Fuel Automatic Pricing Committee.
Tracking Egypt’s growth, the report showed that the economic growth of Egypt’s external environment softened slightly to 2.1 percent in the fourth quarter of 2019, down from 2.3 percent in the third quarter of 2019, after declining for four consecutive quarters between the third quarter of 2018 and the second quarter of 2019.
The report attributed such a decline to the economic growth in advanced economies that softened marginally to 1.2 percent in in the fourth quarter of 2019, down from 1.4 percent in the third quarter of 2019 Q3.
Egypt’s annual headline inflation broadly stabilised at an average of 2.3 percent in the first quarter of Q1 2020, after inching up in the fourth quarter of 2019 from an average of 1.9 percent in the third quarter of 2019, according to the report.
The report also highlighted the sharp reversal in the capital flows into emerging markets in March, which was the sharpest since 2008, and continued in April 2020 for the third consecutive month, albeit at a slower pace owing to the increased risk aversion towards emerging markets following the COVID-19 crisis and its associated containment measures.
The current account deficit stabilised on annual terms in the fourth quarter of 2019, after narrowing in the third quarter of 2019 for the first time since the second quarter of 2018, driven by contributions from remittances, the non-hydrocarbon trade deficit and net investment income deficit.
For the GDP, the report showed that real GDP growth continued to stabilise at 5.6 percent in the fourth quarter of 2019 Q4 and in the first half of the year, which is the same level of FY2018/19 and the highest since FY2007/2008.
The unemployment rate inched up to 8 percent in the fourth quarter of 2019, up from 7.8 percent and 7.5 percent in the second and third quarters of 2019 respectively.