The Egyptian economy faced some challenges during the second quarter (Q2) of the fiscal year (FY) 2019, following a small slowdown in Q1 as the non-oil private sector was stuck in contractionary territory in November for the third consecutive month, according to the January 2019 edition of the FocusEconomics’s Consensus Forecast for the Middle East & North Africa, which was issued on Tuesday.
However, the report cites the ease in inflation rates in November 2018 which reached15.7%, down from 17.7% in October 2018, as the rise in fruits and vegetables’ prices slowed to an extent.
Accordingly, FocusEconomics’ panellists expect the inflation to average 12.8% in calendar year (CY) 2019, and 10.5% in CY 2020.
On 27 December, the Central Bank of Egypt (CBE) left the interest rates unchanged at 16.75%, 17.75%, and 17.2% for the overnight deposit rate, the overnight lending rate, and the main operation rate, respectively.
However, the CBE did pencil in a new inflation target of 9.0% plus or minus three percentage points for Q4 of CY 2020, down from 13.0% plus or minus three percentage points for Q4 of CY 2018.
The report forecasts that the overnight deposit rate will end in CY 2019 at 15.42%, and in CY 2020 at 14.25%.
On the other hand, despite the fact that the CBE has allowed the value of the pound to be determined by market forces since November 2016, the authorities have continued to ensure stability in the exchange rate against the USD, according to the report.
Yet, FocusEconomics’ panel expects the pound to slightly weaken going forward, averaging EGP 18.04 per USD in CY 2019, and EGP 18.38 per USD in CY 2020.
In conclusion, the report indicated that this FY’s economic growth should be robust thanks to higher government investment spending, rising natural gas production, and an improving regulatory environment.
Moreover, FocusEconomics’ panellists expect the GDP to expand to 5.2% in FY 2019—which did not change from last month’s forecast—nd reach 5.3% in FY 2020.
However, despite the reduction in recent years, fiscal imbalances continue to weigh on economic prospects.
More positively, the World Bank signed off on $1bn of financial support to Egypt on 9 December, adding to the amount of $3.2bn, which was already committed since 2015.