Egypt economy shrinks 4 pct last quarter despite yearly growth of 5.2 pct

Ahmed Feteha and Gilane Magdi, Tuesday 22 May 2012

Egypt slipped into recession in Q1 2012 after three consecutive quarters of slow growth, according to official yet unpublished figures seen by Ahram Online

GDP growth
Quarterly growth in Jan - Mar 2012 was inflated as the comparison base (Jan - Mar 2011)was very low (Source: Ministry of Planning)

Egypt's economy shrank by 4 per cent in the first quarter of 2012 compared to the quarter before, according to official data acquired by Ahram Online.

Gross domestic product (GDP) at current prices dropped from LE377.3 billion in the period between October-December 2011 to LE362.5 billion between January-March 2012.

Total investments fell by 16 per cent to LE56.1 billion in Jan-Mar 2012, down from LE66.8 billion in Oct-Dec 2011.

Private sector investments made up 70 per cent of the total in the third quarter of the financial year 2011/12, up from 60 per cent in the preceding quarter.

In absolute terms, however, private investment fell along with total investments. 

On an annualised basis, however, GDP grew by 5.2 per cent between January – March 2012 compared to the same period in the year before, when Egypt's uprising erupted. The economy saw  a short recession, with negative growth in the first quarter of 2011.

The 5.2 per cent growth figure was announced by Egypt's Planning Minister Fayza Abul-Naga on Monday, where she cited them as indications of an improving economy under the government of Prime Minister Kamal El-Ganzouri who took office in early December 2011.

But the data poorly reflect the true state of the Egyptian economy, say experts.

"Comparing the economy in the first three months of 2012 to the same period is 2011 is incorrect," says Magda Kandil, head of the Egyptian Centre for Economic Studies (ECES).

"The economy at that time last year was not performing normally due to the revolution." 

Egypt's economy experienced virtual paralysis between January and March 2011 following the outbreak of a popular uprising that eventually unseated then president Hosni Mubarak.

During that quarter in 2011, Egypt's economy was down 4.3 per cent compared to the same period in 2010.

Kandil says there are statistical techniques which can remove the impact of the revolution impact and show the real situation of the economy.

"They should have normalised the 2011 figures to get a proper number," she said.

She suggested that all the "abnormalities" of the first quarter of 2011 should have been removed in order for the comparison to be accurate.

If this was done, according to Kandil's calculations, the annualised growth figure would have been just 0.9 per cent.

The overall economy grew by 1.8 per cent in the July – March period of the current 2011/12 financial year. 

This figure is still below the 2.3 per cent growth seen over the same period in the previous 2010/11 financial year. Both are much lower than 2009/10's figure of 5.1 per cent.

A government report acquired by Ahram Online, however, described the economic figures as "positive" and "reasons for optimism". 

It predicted an annual growth rate for the economy of 2 per cent in the 2011/12 financial year which ends on 30 June.

Investments were equivalent to 14.4 per cent of GDP, of which 67 per cent were privately funded.

Most sectors showed strong rebounds from the levels to which they slipped in the first three months of 2011.

Manufacturing, for example, which contributes around 15 per cent to GDP grew by 5.8 per cent in January – March 2012. It shrank 11.4 per cent over the same period the year before.

In the nine months since July 2011, however, the manufacturing sector saw a mild decline of 0.4 per cent. 

The transport and storage sector grew 7.9 per cent in Jan – March 2012 compared to the same period the year before.

Tourism, a sector heavily hit by the uprising, grew by an impressive 25 per cent annually. 

In the nine months since July 2011, however, it registered a decline.

The communications sector, meanwhile, grew by 8.9 per cent. Construction, too, managed an impressive 10.2 per cent rise on an annual basis, despite only growing 2 per cent in the nine months since last July.

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