The coronavirus (COVID-19) pandemic is posing a threat to the main drivers of Egypt’s GDP growth, the American Chamber of Commerce in Egypt (AmCham) has said in recent research.
AmCham’s research comes as part of a series mapping out common factors affecting key sectors based on the degree of their short- to medium-term exposure to the virus.
Egypt’s GDP grew by an estimated 5% in the first quarter (Q1) of fiscal year (FY) 2019/20. Internal trade, agriculture, real estate, non- oil manufacturing and ICT drove 56% of this growth, the research said.
It also noted that, as the coronavirus crisis in Egypt emerged towards the end of Q3 2019/20, the full impacts will not be reflected in the quarter’s data.
However, the sectors that drove growth early in the fiscal year are now vulnerable, which is expected to drag overall GDP growth down drastically in Q4 of FY 2019/20, the report mentioned.
In April, Minister of Planning and Economic Development, Hala El-Said, projected that the local economy will grow 4.2% by the end of FY 2019/20.
Egypt’s labour-intensive industries, including agriculture, construction and real estate, have been more severely affected by the government’s containment measures for the virus, the AmCham research said.
It also noted that agriculture and food processing are two of Egypt’s top exporting sectors, which have been harder hit by order delays from overseas markets.
If the pandemic continues throughout 2020, global foreign direct investment (FDI) levels may also hit their lowest levels since the Global Financial Crisis of 2008-2009. This could possibly lead to a decline of up to 35%, compared to a projected growth of 5% during 2020-21 prior to the pandemic.
Egypt is a small open economy with many sectors dependent on foreign trade and heavy FDI inflows. According to the International Monetary Fund (IMF), Egypt is the Middle East and North Africa (MENA) region’s only economy that is forecasted to expand in 2020.
The IMF now projects that GDP will grow only 2% in 2020, compared to earlier forecasts of 5.8% for the year, before accelerating to 2.8% in 2021.
Egypt’s current account deficit is expected to widen to 4.3% of GDP by the end of the year and 4.5% in 2021, due to expected drops in foreign currency receipts. Globally, the tourism, hospitality and aviation sectors have seen a near-total halt in demand, and Egypt is no exception.
Other severely impacted sectors in Egypt are automotive assembly and auto parts, transportation and logistics, and energy, as they could see large FDI outflows and sharp falls in trade.
Egypt’s banking sector is taking hits from a number of directions, including foreign currency liquidity issues. This is due to its reliance on portfolio inflows and potential threats to asset quality following significant monetary easing.