Country Report Egypt January 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 only a minor deterioration in the public finances in fiscal year 2008/09. The Economist Intelligence Unit now forecasts a deficit of 7% of GDP in 2008/09.
• We believe that the Central Bank of Egypt has reached the end of its tightening cycle. We expect it to start cutting interest rates at its next meeting, in early February, with the possibility of several cuts in 2009 and in 2010.
• We have made a downward adjustment to our GDP growth forecast, owing to a deteriorating outlook for export growth as the EU is now in recession. We now expect GDP growth of 4.9% in 2008/09 and 4.5% in 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 fall into deficit in 2009 before recovering to post a small surplus in 2010.

Monthly review

• The conflict in the Gaza Strip has had repercussions for Egyptian foreign and domestic policy. Egypt has attempted to negotiate a peace deal between Israel and Hamas, but has so far been unsuccessful.
• The government has provided more details about the content of the fiscal package announced in late November. The package aims to boost economic activity, mainly by increasing public investment in infrastructure projects.
• The investments are part of an ongoing programme to improve Egypt's infrastructure and overall standards of living for the population, and include water treatment, roads, bridges, ports and railways.
• Government expenditure on subsidies surged by 154% to reach E34bn (US$6bn) in the first five months of 2008/09. Government investment spending increased by 42.5% to E11.3bn in the same period.
• The Egyptian stock exchange rallied in December with the CASE 30 index rebounding by 9.3% month on month. However, the CASE 30 fell by 56% over 2008 as a whole, ending 2008 at 4,596, from 10,550 at end-December 2007,
• The current-account deficit widened to US$966m in the first quarter of fiscal 2008/09 from US$131m in the same period a year earlier. The widening deficit was mainly driven by a soaring merchandise trade deficit.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;70;15
NAICS Code: 52;72;23