Egypt’s economy seen growing 5.5 pct in year to end of June

Egypt's economy seen growing 5.5 pct in year to end of June
Egypt's economy seen growing 5.5 pct in year to end of June

Egypt's economy is expected to grow 5.5 percent in the fiscal year that ends in June, according to economists polled by Reuters, a forecast slightly higher than the one offered by a survey three months ago but lower than the government's target.

The economy, with the exception of the oil industry, hasstruggled to attract foreign investors since the 2011 uprising that unseatedHosni Mubarak.

Egypt's non-oil private-sector activity contracted for theseventh consecutive month in March, according to the Emirates NBD EgyptPurchasing Managers' Index (PMI). Private-sector activity has expanded in onlyfive months over the last three years.

"Medium-term economic growth is underpinned by improvingfiscal finances, reforms to strengthen the business environment and risinginvestment in key sectors," said Nadene Johnson, an economist at NKCAfrican Economics. "But structural constraints are keeping the growthforecast slightly subdued."

On Tuesday, Egypt's election commission said nearly 90percent of voters in a referendum had approved constitutional changes, a movethat could allow President Abdel Fattah al-Sisi to stay in power until 2030.

Sisi's supporters say he has stabilised Egypt and needs moretime to reform and develop the economy. Critics fear the constitutional changeswill curb political competition and debate, leading to a long period of one-manrule.

Referendumboost

Aiming to shore up investor confidence, Egypt has beenimplementing economic reforms as part of a three-year, $12 billion agreementwith the International Monetary Fund in November 2016. The reforms included avalue-added tax, cuts to energy subsidies and a steep currency devaluation.

The median forecast from 20 economists polled April 8-22,before the referendum result, put growth at 5.5 percent in the current2018/2019 fiscal year, lower than the government's target. Three months ago,the median of 14 economists predicted 5.3 percent GDP growth.

Medians projected 5.6 percent GDP growth in the fiscal yearending in June 2020 and 5.7 percent in the 2020/2021 fiscal year.

Egypt is targeting growth at 5.6 percent in the 2018/2019fiscal year, Finance Minister Mohamed Maait said in February, compared with itsprevious target of 5.8 percent. It targets 6.1 percent growth in 2019/2020.

Economic growth will be "fuelled mostly by governmentspending on national projects and infrastructure," said Yara Elkahky, aneconomist at Naeem Brokerage. "Household consumption growth, however, isexpected to remain muted as purchasing power still remains tight."

The new consensus put Egypt's urban consumer inflation at 14.2 percent, down from the 15.5 percent projected three months ago.

Annual urban consumer price inflation slowed to 14.2 percentin March from 14.4 percent in February. It is expected to decelerate to 12.0percent in the 2019/2020 fiscal year and 9.6 percent in the 2020/2021 fiscalyear.

Core inflation, which strips out volatile items such asfood, fell to 8.9 percent in March from 9.2 percent in February.

Millions of Egyptians live below the poverty line andstruggle to meet basic needs. They have faced rising costs since the pound wasfloated.

Most remaining fuel subsidies are due to be lifted by mid-June.

Elkahky expects inflation "to continue declining amidnormalised supply levels and seasonality impacts," adding that inflationcould drop further as the Egyptian pound appreciates against the dollar.

"Risks to fiscal sustainability are still substantial,"said Maya Senussi, senior economist for the Middle East at Oxford Economics.She added that "could weigh on the general thrust of the (government'seconomic reform) policy."

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