By Patrick Werr
CAIRO (Reuters) – Egypt’s economy will grow slower than earlier predicted as inflation eats into purchasing power and the Egyptian pound weakens, a Reuters poll showed on Thursday.
A small part of the polling was done before the outbreak of violence in neighbouring Gaza and Israel, the ramifications of which may cut into Egypt’s already dimming growth prospects.
“A significant downside risk to growth in the near term may come from any impact on the tourism sector from the Gaza war and fears of a regional escalation,” said Farouk Soussa of Goldman Sachs.
“While to date, tourism has been a significant tail wind for growth, FX scarcity and associated supply chain issues are likely to weigh on growth prospects as Egypt strives to keep the import bill under control,” he added.
Rapid money supply growth over the last two years has pushed up consumer prices and weakened the currency, causing the living standards of many Egyptians to decline, economists and analysts say.
A $3 billion financial support package from the International Monetary Fund (IMF) signed in December has floundered after Egypt paused on its pledge to move to a flexible exchange rate regime and sell state assets.
Median forecasts in the Reuters poll of 15 economists was for growth of 3.9% in the fiscal year that began on July 1, down from a previous forecast of 4.2% in July. In 2024/25, growth will rebound to 4.5%, the latest poll showed.
The presidency said in March Egypt was targeting GDP growth of 5% in its 2023/24 budget.
Last month, the central bank estimated the economy had grown 4.1% in the first three quarters of fiscal 2022/23 and was likely to have slowed in the April-June quarter before picking up over the medium term.
“We expect growth to be sluggish, as continuing high inflation causes consumption growth to slow,” said Allen Sandeep of Naeem Brokerage.
Annual headline inflation has surged over the last four months to a record 38% in September.
The median forecast for the current financial year was for average inflation to ease to 33.75% then drop to 20.15% in 2024/25.
In a previous poll in July, economists had predicted median inflation would average 22% in 2023/24 and 13% in the following year.
The poll’s median currency forecast was for the Egyptian pound to weaken to 35.0 to the dollar by end-December, below the previous forecast of 34.8 pounds.
Economists expected it to slide to 37.06 pounds to the dollar by end-2024 and 39.02 by end-2025.
The Egyptian pound has lost nearly 50% of its value against the dollar in a series of steep devaluations since March 2022, and has remained under pressure in the black market.
For other stories from the Reuters global economic poll:
(Writing by Patrick Werr; Polling by Devayani Sathyan and Vijayalakshmi Srinivasan; Editing by Bernadette Baum)