Investment in Egypt

Egypt - Investment

GDP growth accelerates in Q2 of FY 2021

The economy expanded 2.0% year-on-year in the second quarter of FY 2021 (October–December 2020), according to estimates released by the Ministry of Planning and Economic Development. The reading followed the 0.7% increase recorded in the first quarter of the fiscal year and marked a continued, albeit mild, recovery for the Egyptian economy.

Domestically, government consumption rose in the quarter, growing 4.3% (Q1: +3.4% year-on-year), while fixed investment fell at a reduced rate of 22.7% (Q1: -41.8% yoy). However, private consumption growth slowed to 7.6% in Q2 having boosted 11.8% higher in the prior quarter, which weighed on overall growth somewhat.

In the external arena, exports fell 27.1% in annual terms in Q2, softening from the 41.1% plunge clocked in Q1. Recovering demand in key international markets amid milder lockdown conditions during the period likely drove the improvement. Meanwhile, imports dropped 13.9% in Q2, moderating from Q1’s 22.1% contraction.

Going forward, the recovery is projected to have slowed in Q3 (January–March 2021) as the upswing in Covid-19 cases both domestically and in key international markets, and the associated continuation of restrictions, is likely to have held back activity somewhat. However, growth should accelerate sharply in the final quarter of the fiscal year, in part due to a low base effect, but also driven by improving demand dynamics at home and abroad.

Regarding the outlook for the current fiscal year as a whole, analysts at the EIU commented:

“The impact of the pandemic on trade and tourism flows and on domestic activity will persist in fiscal year 2020/21 (July–June), but given the extent of government support for major projects, we expect the economy to expand by 2.9% in that year. Pandemic-related global headwinds will hinder several sectors. Tourism, which accounts for about 9.5% of employment and 5.5% of GDP, will remain severely affected, given the effect of the pandemic on international travel, a slow vaccine rollout in some leading markets and the extended period needed to roll out vaccines domestically. A weak tourism sector will subdue growth in the retail and services sectors. Multilateral backing will support continued government consumption and investment, but private consumption and exports will remain vulnerable.”

FocusEconomics Consensus Forecast panelists project the economy to expand 3.1% in FY 2021 and 5.0% in FY 2022.