Egypt: Economic growth picks up in October-December period
March 20, 2017
GDP increased an annual 3.8% in the October-December period (which is Q4 of calendar year 2016 and Q2 of Egypt’s 2017 fiscal year), according to the Ministry of Planning. Q4’s result marked an uptick compared to the 3.4% increase in Q3 but came in below the 4.0% expansion observed in the same quarter last year.
Although comprehensive data has not been released, the relatively meagre expansion was likely the result of deteriorating economic conditions among Egyptian households. Authorities’ efforts to improve the country’s weakened external position, which included the floating of the pound and the scrapping of multiple subsidies, have heavily dragged on private spending. Inflation has sky-rocketed, imported goods have become difficult to come by and basic goods—previously heavily subsidized—are now eating away at a sizeable part of the Egyptians’ budget. Likewise, government spending likely moderated in the quarter on the back of measures aimed at staunching the country’s soaring fiscal deficit. Conversely, investment growth is expected to have gathered momentum as investors make their way back into the country following years of uncertainty.
The external sector is unlikely to have performed much better. Egyptian exporting sectors, despite benefiting from the weakness of the pound and thus from increased competitiveness, are much less price elastic than importing sectors, and their ability to respond to tailwinds has so far proven limited. Several manufacturing sectors are highly dependent on imports, limiting any effect from a weak currency, while the tourist industry, one of the country’s main sources of foreign currency, has been hit hard by a string of terrorist attacks in recent years. Leading data for inventory drawdowns suggest that imports have not picked up considerably either, as unaffordable prices push manufacturers and consumers to seek domestic alternatives or use existing stocks.
The Egyptian economy remains heavily under pressure as the effects of economic reforms continue to unfold. In the near term, growth will be held back by a weak domestic economy and the need for fiscal consolidation. Nonetheless, an improved outlook for exports, much higher overseas investment and a more stable fiscal and economic environment are likely to prompt higher growth.
Author: David Ampudia, Economist