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Egypt's economy to grow slowly but steadily

Economic growth will be solid over the next two years thanks to growing private investment, but will not reach pre-crisis level

Reuters, Wednesday 22 Dec 2010
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Investments will stand at healthy levels for next two years. (Photo:
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Egypt's economy is expected to experience a steady grow over the next two years thanks to an increase in private investment. The expansion, however, will be slower than that predicted by government officials, a Reuters poll showed on Tuesday.

The survey of 12 economists predicts that gross domestic product (GDP) in the Arab world's most populous nation will grow by 5.4 per cent in the fiscal year ending June 2011, based on the median figure. Egypt's economy is expected to grow at faster pace than those of all Gulf Arab states, except for Qatar's.

Forecasts of 13 economists showed that the GDP will grow by 5.5 per cent in the year after, boosted by additional private investment and a recovery in Suez Canal and tourism revenue.

"We foresee very steady growth, mainly due to domestic demand and private consumption, as well as growth in private investments," said Mohamed Rahmy, an economist with Beltone Financial.

"There is also a gradual recovery in external sectors, including the Suez Canal revenues, tourism and non-oil exports."

The poll forecasts are well below the annual growth rates of more than 7 per cent that Egypt had posted prior to the global financial crisis, and are also lower than the 6 per cent rate that economists say Egypt must sustain in order to create jobs.

Egypt's finance minister said last week he expected the economy to grow by 7 per cent in the financial year beginning in July 2011, and 6 per cent this year.

Egypt lowered its GDP growth figure for the last fiscal year that ended June 2010 to 5.1 per cent, from a previously stated 5.3 per cent.

SUPPLY SHOCKS

The poll predicts inflation will accelerate to an average of 11.4 per cent in the 2010/2011 financial year, before falling to 10 per cent the year after.

Economists expect rising food prices to push up inflation in this fiscal year, but estimate a contained effect the following year.

"We expect that supply shocks will subside, and we see limited impact of vegetable and meat supply shocks on inflation," said Mohamed Abu Basha, an economist at investment bank EFG-Hermes.

Urban consumer price inflation, the most closely watched indicator of prices, fell during the year, hitting its 15-month low in November, at 10.2 per cent.

The Central Bank of Egypt held its benchmark overnight lending rate steady at 9.75 per cent at its last meeting on 16 December, saying inflation was contained but that limited investment and concerns over the global recovery could weigh on the economy.

The Egyptian pound, which fell this week to its weakest level against the U.S. dollar since February 2005 to 5.8021, is expected to remain relatively steady at 5.80 during the financial year ending in June 2011 and the year after.

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