CAIRO (Reuters) – Egypt’s economy will grow 5.2 percent in the fiscal year that began in July, economists said in a Reuters poll, as Cairo pushes ahead with economic reforms that have strained millions of Egyptians living under the poverty line.
The reforms imposed under a 2016 IMF-backed austerity plan tied to a $12 billion loan programme have revived economic growth in the Arab world’s most populous country following years of political turmoil.
The Reuters poll of 13 economists put expected growth at an average of 5.2 percent for the 2018/19 fiscal year, below a government projection of 5.8 percent.
A median forecast of 12 respondents was for 5.5 percent growth in the 2019-20 fiscal year.
“Looking further ahead, Egypt’s commitment to the IMF reform programme and the authorities’ ability to follow through with the difficult reforms will be key to unlocking Egypt’s growth potential,” said Nadene Johnson, an economist at NKC African Economics.
“The country has made significant progress under the IMF loan programme thus far and therefore Egypt’s medium-term economic growth prospects remain strong,” she told Reuters.
The IMF maintained its previous 5.5 percent projection for Egypt’s GDP growth in the 2018-2019 fiscal year, driven mainly by a recovery in tourism and rising natural gas output.
Johnson said the economy still faced structural challenges that would require further reforms, including high unemployment, labour market inefficiencies and weak healthcare and education levels.
“Efforts to develop the private sector and reduce the role of the state will be essential to significantly reduce unemployment (especially amongst the youth),” she said.
The Reuters poll also put annual urban consumer price inflation at 14.2 percent for the current fiscal year, down from a previous prediction of 20.9 percent.
Economists polled expected inflation to drop to 12.2 percent in the 2019/20 fiscal year.
“We expect inflation to remain elevated largely due to recent subsidy cuts. As such, pressure on household discretionary income may persist in the near term, in our view,” said Bilal Khan, a senior economist at Standard Chartered PLC.
A currency float in 2016 drove inflation up to record highs, but with a cooling base effect the rate has been on a steady decline since, hitting 11.4 percent in May, its lowest since April 2016.
In June, inflation climbed back up to 14.4 percent following fuel and electricity subsidy cuts that hit the economy sooner than expected.
The central bank last month kept its deposit and lending rates unchanged at 16.75 and 17.75 percent respectively, over concerns inflation will rise after the latest austerity measures.
Six economists forecast overnight lending rates at around 17 percent in fiscal year 2018-19, but expected them to drop to 15 percent in the following fiscal year.
In a research note on Sunday, Emirates NBD, Dubai’s largest lender, said Egypt had proven to be comparatively resilient to foreign investors’ exit from emerging markets in recent months.
“We expect that with the economy in a more stable position, efforts will turn to normalising policy and boosting growth,” the bank said.
Emirates NBD says it expects there is room for Egypt’s central bank to cut interest rates by 100 basis points before the end of the calendar year.
(Polling by Khushboo Mittal and Vivek Mishra, Writing by Sami Aboudi and Nadine Awadalla; Editing by Alison Williams)