Country Report Egypt September 2009

Outlook for 2009-10

• Against a backdrop of slower growth, the regime will begin to prepare the ground for the parliamentary election in 2010, but there will be outbursts of social unrest as the poor suffer from the worsening economic conditions.
• Mindful of its need to deliver on social services and benefits, the government will press on with its programme of economic reform, aimed at raising living standards and creating jobs.
• The Economist Intelligence Unit expects the government's fiscal policy to remain strongly expansionary in fiscal year 2009/10 (July-June), despite falling tax receipts. The will lead to a widening of the budget deficit to 8.4% of GDP.
• The Central Bank of Egypt (CBE) has embarked on a loosening cycle, with six interest rate cuts so far this year as inflation has slowed. We expect to see one more reduction in late 2009 or early 2010.
• We have made an upward revision to our estimate for real GDP growth in 2008/09 and our forecast for 2009/10. GDP growth is estimated at 4.7% in 2008/09. In 2009/10 real growth should reach 4.5%, with an upturn in 2010.
• The trade deficit will narrow in 2009-10, as falling commodity prices reduce the import bill. The current account will remain in deficit in both 2009 and 2010, with the shortfall averaging 1.6% of GDP over the two years.

Monthly review

• In August, Egypt's president, Hosni Mubarak, visited the US and made clear his view that Israel must impose a comprehensive freeze on settlements in the occupied Palestinian territories before peace negotiations can take place.
• Transport and rubbish collection services were disrupted in Cairo in August and September. The transport strike was halted as the government met most demands, but rubbish has continued to pile up in Giza.
• The government has asked the US administration for an extension of its? preferential industrial export zones (the Qualifying Industrial Zones) in Upper? Egypt.
• Urban headline inflation declined to 9% year on year in August, from 9.9% in July 2009. However, food prices continued to increase month on month, by 3.1%, but this was down from 4.2% in July.
• Underlying inflation, without food prices, shows a clear downward trend, and the CBE cut interest rates on September 17th, by 25 basis points, taking the deposit rate and overnight lending rate to 8.25% and 9.75%, respectively.
• The balance of payments recorded an overall deficit of US$3.4bn in 2008/09. The trade deficit widened to US$25.2bn, from US$23.4bn in 2007/08.

This report covers the following industry codes:
SIC Code: 60;48;10
NAICS Code: 52;517;212