FocusEconomics panellists expected that Egypt’s overnight deposit rate to be reduced further to 13.71%, by the end of calendar year (CY) 2019 and 10.87%, by the end of CY 2020, according to FocusEconomics Consensus Forecast report for November.
At its last monetary policy meeting on the 27th September, the Central Bank of Egypt (CBE) left the overnight deposit rate at 16.75%, the overnight lending rate at 17.75%, and the main operation rate at 17.25%. Although the CBE has allowed the value of the pound to be determined by market forces since November 2016, the government has continued to ensure stability in the exchange rate against the US dollar. On the 26th October, the pound traded at EGP 17.91 per dollar, making no change from the same day a month earlier.
FocusEconomics projects the pound weakening slightly by end CY 2019, to EGP 18.07 per dollar and to EGP 18.18 per dollar, by CY 2020 at. The report noted that the Egyptian economy performed well in the fourth quarter (Q4) of the fiscal year (FY) 2018, with GDP growth remaining at the multi-year high recorded for the year’s third quarter, primarily due to higher investment and exports.
“Economic growth is expected to remain robust this FY and the next one. Increased government investment spending, rising natural gas production, and improved regulatory environment and construction activity related to the building of the New Capital City should boost activity. However, large fiscal imbalances and the higher price of oil will weigh down on prospects,” the report read.
Therefore, the report predicts Egypt’s GDP growth of 5.2% in FY 2019, which is unchanged from last month’s forecast, and of 5.2% again in FY 2020. The report pointed out that economic activity was boosted by strong investment in Q4 of FY 2018. Investment rose 21.9% year-over-year in Q4, likely supported by government investment spending, and recent reforms to improve the business environment, such as new industrial licensing, bankruptcy and foreign investment laws. Private consumption increased 0.3% in Q4, while government consumption rose 0.5%.
The report anticipated that the total investment will grow by 10.3% in FY 2019, which is unchanged from last month’s forecast, and 9.4% in FY 2020.
On the external front, exports of goods and services grew a solid 5.9% in Q4, while imports fell 1.3%. Overall, this strong GDP reading also fits with the higher Purchasing Managers’ Index (PMI) readings for the non-oil private sector recorded for April–June, compared to the same period a year earlier.
The report highlighted that the current account deficit also fell to a near five-year low, while the unemployment rate declined to a seven and a half year low. More recent signs have been mixed. After operating conditions in the non-oil private sector improved in July and August, due to increased new business inflows, conditions deteriorated in September, although businesses grew more optimistic about prospects.
Meanwhile, the recent investor withdrawal from emerging market assets has not left Egypt completely unscathed, in October, the 10-year government bond yield hit highs last seen in July 2017.
Regarding the inflation in the country, the report elaborated that inflation accelerated to 16.0% in September from 14.2% in August. Higher prices for fresh fruits and vegetables and regulated items, stoked by recent government subsidy cuts, drove inflation in September. Our panellists expect inflation to average 12.5%, in CY 2019 and 10.4%, in CY 2020.
FocusEconomics Consensus Forecast participants expect inflation to average 12.5%, in CY 2019, which is up 0.4 percentage points from last month’s estimate. In CY 2020, inflation is forecast to slow down to 10.4%.