Egypt GDP grows by 0.4 pct in Q4 2011; not enough to generate jobs

Ahram Online and Reuters, Wednesday 7 Mar 2012

Despite political instability during the last quarter of 2011, the economy grew 0.4 per cent on back of a pickup in industrial production and economic activity

GDP growth is still driven by private consumption (Photo: AP)

Egypt's economy grew by an annualised 0.4 per cent in the fourth quarter of 2011, the second quarter of the financial year, indicating the economy is on the mend after the turmoil of last year's popular uprising, the deputy chairman of parliament's economic committee said, citing official figures.

"The slowdown in the growth rate has been contained, and that is a good indicator for growth," said MP Abbas Abdel Aziz on Monday.

GDP growth rate had slowed down to 0.2 per cent in the preceding quarter. According to Cairo-based investment bank, Beltone Financial, the growth improvement is due to the pickup in industrial production and economic activity during the October-December 2011 period.

"We view this growth as very positive, as the first two quarters of FY2011/12 (Jul- Sep, Oct-Dec 2011) witnessed higher political instability as compared to the current quarter of FY11/12," added the investment bank in a note issued Wednesday.

It added that high GDP in the comparison quarters make GDP growth in the first two quarter of FY2011/12 look particularly sluggish.  

"Annual growth... [is] weighed down by unfavourable base effects, as we are comparing it with very high levels of GDP witnessed in the first two quarters of FY10/11, before the onset of the January 25th revolution."

Beltone estimates a 2 per cent GDP growth rate in the financial year 11/12 and therefore the first two quarters results are in line with this expectation. Average growth in the coming two quarters is predicted to be 0.7 per cent annually.

Such growth rate, the bank indicates, is not sufficient to generate enough employment opportunities to absorb the increasingly idle labour force.

"Unemployment will continue to increase until growth rates begin to pick up at a faster rate than the population growth rate, which averages around 2 per cent per annum," the note read.

Egypt's GDP growth is currently maintained by private consumption rather than investment, but such a situation is not sustainable. Investment growth has to catch up with increases in consumption, either through normal channels or through aid to lift the Egyptian economy back to safety.

The results, however, do not seem favourable for 2011. An analyst said the feeble growth meant that Egypt's economy had contracted for the whole of the previous year.

This "confirms our fears that the economy contracted last year for the first time since at least the 1960s," Said Hirsh from Capital Economics wrote.

He added that recent industrial data showed that a recovery that had started in the third quarter was losing steam and forecast that Egypt's gross domestic product (GDP) would grow by only 3 per cent in 2012, down from the country's average 5 percent over the past decade. 

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