Country Report Egypt February 2009

Outlook for 2009-10

• A slowdown in the domestic economy is likely to exacerbate social discontent (which has been fuelled by high prices for staple goods during 2008), sparking sporadic outbursts of unrest over the next 12 months.
• The government will continue to press ahead with its programme of economic reform, aimed at raising living standards and creating employment.
• A new fiscal stimulus package to boost economic growth is likely to lead to a deterioration in the public finances. The Economist Intelligence Unit now forecasts a deficit of 7.1% of GDP in fiscal year 2008/09 (July 1st-June 30th).
• The Central Bank of Egypt has embarked on a loosening cycle. Following a 100-basis-point cut in interest rates in early February, we expect to see several cuts in 2009 and in 2010, probably by a total of around 200-300 basis points.
• We have made a downward adjustment to our GDP growth forecast, owing to a worsening outlook for export growth as recession in the EU is deepening. We now expect GDP growth of 3.9% in both 2008/09 and 2009/10.
• The trade deficit will narrow in 2009-10 compared with 2008, as falling commodity prices reduce the import bill. The current account will remain in deficit in both 2009 and 2010, but the deficits will be smaller than in 2008.

Monthly review

• Egypt intensified its diplomatic efforts to secure a long-lasting peace deal between Israel and Hamas, and invited several world leaders to attend a Palestine rebuilding conference to be held in Sharm el-Sheikh on March 2nd.
• The government confirmed its commitment to economic reform despite the economic downturn at the sixth Economist Business Roundtable with the government, held in Cairo on February 16th and 17th.
• The fiscal stimulus programme has continued, with the Ministry of Trade and Industry announcing energy price cuts averaging 33% for industry.
• Real GDP growth slowed to 4.1% year on year in the second quarter of 2008/09 (October-December), down from 5.8% in the first quarter. Growth remained buoyant in the construction and hydrocarbons sectors.
• Suez Canal receipts fell in December and January. The waterway has been badly hit by the sharp slowdown in world trade, with the number of vessels passing through falling sharply.
• The investigation into allegations of collusion and price fixing in the steel market by the Egyptian Competition Authority has ended with the authority clearing the firms involved of any wrongdoing.
• Year-on-year inflation fell to 14.3% in January, from 18.3% in December.

Source: Country Report

This report covers the following industry codes:
SIC Code: 53
NAICS Code: 44