Egypt’s real GDP growth to slow to 3% in 2023 as higher inflation looms: Fitch Solutions

Doaa A.Moneim , Monday 6 Feb 2023

Egypt’s real GDP growth is expected to moderate to three percent in 2023 with a higher inflationary wave anticipated over the year, Fitch Solutions said in its MENA Monthly Outlook report shared with Ahram Online.

Fitch Solutions


In FY 2021/2022, Egypt’s real GDP growth rose to 6.6 percent, up from 3.3 percent in the previous fiscal year, according to the Ministry of Planning and Economic Development.

This means that Egypt’s real GDP growth is expected to go below the level seen in FY 2020/2021, which witnessed the outbreak of the coronavirus pandemic.

Egypt has recently announced that it targets to restore real GDP growth to between 5.5 and six percent through FY 2025/2026 gradually.

In late December, Egypt signed $3 billion laon deal with the International Monetary Fund (IMF) which aims to tackle the imbalances in the country's macroeconomy and budget suffer as a result of the repercussions of the war in Ukraine.

In its update on the World Economic Outlook report released last week, the IMF revised down its projections for Egypt’s real GDP growth in FY 2022/2023 (ends by end-June) by 0.4 percent to four percent compared to the fund’s October projections.

The Fitch report said inflation in Egypt is expected to record an average of 18.3 percent in 2023, before moderating to six percent through 2027.

Egypt’s annual headline inflation reached unprecedented levels in December, going over 21 percent, mainly due to a shortage in a number of staples and global supply chain disruptions exacerbated by the escalating Russia-Ukraine conflict.

The government took several moves in an attempt to curb the high inflation, including the formation of a supreme committee to set guiding prices for staples and other commodities. It also made available a number of staples at lower prices.

“A weaker pound and increases in administered products are expected to fuel the inflationary pressures in Egypt,” the report stated.

The Egyptian pound is currently performing at its lowest level on record against the US dollar, which has risen by over 100 percent since March, trading at above EGP 30.

On a regional level, except in Egypt, the report predicted inflation in the Middle East and North Africa (MENA) to ease in 2023, but to remain above the historical averages. It expects price growth to be dampened by lower commodity prices, supportive exchange rate dynamics, and tighter monetary policies.

Meanwhile, the report projected that the region’s central banks will keep hiking key interest rates in the short term due to the mirroring of the US monetary policy in some countries, aggressive hiking in the eurozone, and country-specific factors.

In this context, the report predicted higher risks of social instability in North Africa and the Levant, reflected by lower scores on the social stability component of Fitch Solutions’ Short-Term Political Risk Index.

The report named eight countries in the region will see high social and political unrest. It added political risk is high in Iraq, Lebanon, the West Bank and Gaza, and Syria, while Egypt, Iran, Morocco, and Tunisia will see high inflation and/or worsening economic conditions.

“We believe that a sudden controversial effect could spark widespread demonstrations in individual countries or across the region as a whole, with contagion risks remaining high,” the report said.

The report expected the regional deficit to narrow due to lower import bill. However, external pressures will persist in some countries, mainly in Egypt.

Egypt’s balance of payments improved in the first quarter of FY 2022/2023 (July-September), narrowing by 20.2 percent to post $3.2 billion, down from $4 billion in the same period of the preceding fiscal year, the Central said last week.

Fitch referred to the IMF deal sealed in December, noting that implementation risks or risks of slower materialisation of pledged funds are non-negligible.

“Should these risks materialise, then we will see more pressure on the currency and public finances in these countries and even higher political risk,” according to the report.

Generally, the report expected MENA’s GDP growth to decelerate in 2023 to 4.3 percent, down from 5.5 percent recorded a year earlier following a strong post-pandemic recovery.

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