Egypt: Economic growth remains robust despite slowing slightly in Q1 FY 2020
November 14, 2019
The economy expanded 5.6% in the first quarter of FY 2020, which ran from July to September, from the same period a year earlier. This was slightly slower than the 5.7% growth rate achieved in the previous quarter.
Although comprehensive data is not yet available, the government said the internal trade, agriculture, real estate, industry and communication sectors were the main drivers of growth. In expenditure terms, private consumption was likely strong, given that inflation slowed significantly in Q1 FY 2020 and the unemployment rate dropped to 7.5% in the fourth quarter of FY 2019, marking at least an over one decade low. Meanwhile, the Central Bank of Egypt’s interest rate cutting drive this year appears to have fed into strong bank lending in the first two months of Q1 FY 2020, supporting fixed investment. Recent improvements in the ease of doing business in Egypt, as highlighted by the World Bank’s October Doing Business report, should also have energized fixed investment. On the external front, however, a stronger Egyptian pound against the USD likely restrained export growth.
Economic growth is primed to slow slightly in the coming quarters, although it should remain firm nonetheless. A downtick in global growth, partly due to trade tensions between the U.S. and China, is likely to have a chilling effect on demand for Egyptian exports, as should the recent strengthening of the Egyptian pound, although it is forecast to weaken again going forward. However, historically low inflation, lower interest rates and improvements in the ease of doing business should all underpin growth in FY 2020.
Author: Edward Gardner, Economist