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Real growth rate expected to decline to 3.7%: Prime Investment Research - Daily News Egypt

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Real growth rate expected to decline to 3.7%: Prime Investment Research

The firm believes targeted level of budget deficit which amounts to EGP 242bn is unrealistic

Prime Investment Research institute expected a decline in real growth rate during fiscal year 2015/2016 to 3.7% after achieving noticeable progress in FY 2014/2015 of 4.2%.

The research firm attributed the decline to the expected slowdown in investments due to the challenges they face, mainly in terms of FX shortages as well as the energy problem faced in the first half of the fiscal year.

The report expected expenditure would grow at a slower rate due to unchecked inflation, negative real wages, slow recovery in unemployment rate, and rate hikes.

The report said government expenditure is still growing to compensate the slowly recovering investment levels.

“Net exports balance is deteriorating though the devaluation of the Egyptian Pound and the fall in international commodity prices,” the report read. “Balance of Payment is still suffering from weakening fundamentals in terms of widening trade deficit, expected slowdown in tourism and Suez Canal revenues, and cautious approach of Foreign Direct Investments (FDIs).”

The report noted that the government is seeking external financial support, which is clear from its efforts to build a decent base of foreign currency.

The research institute believes the targeted level of budget deficit set by the government, which amounts to EGP 242bn (representing around 8.9% of GDP), is unrealistic in accordance with the slowdown in domestic and global business activities.

The budget deficit is at EGP 312bn, accounting for 11.2% of GDP and will not record a one-digit figure before FY 2017/2018.

The report mentioned that after achieving an average of 11% in FY 2015 due to the partial lifting of subsidies and increasing sales taxes on some goods namely, cigarettes, and alcohol, headline inflation rate has relaxed in the first quarter (Q1) of the current fiscal year due to favourable base effects when compared with the same period a year before.

However the report expected a price jump in the second half of the year in accordance with expectations of a weaker domestic currency and soon-to-be-applied ascetic procedures which aim to curb the government’s budget.

The inflation rate at 10.2% for the current FY and 10.5% for the following year is expected to see the application of the long-awaited value added tax (VAT), according to the company.

After the recent rate hikes by 50 basis points (bps) in the MPC of the CBE meeting held in December 2015, a further hike is expected to be seen in Q4 FY16 at the committee’s April meeting, as inflationary pressures dwindle.

Topics: inflation

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