By Patrick Werr
CAIRO (Reuters) – Egyptian economic growth will be slower than previously expected as its pound weakens, inflation cuts into purchasing power and fallout from the Gaza crisis eats into the country’s main sources of foreign currency, a Reuters poll showed on Wednesday.
Revenue from the Suez Canal fell 40% in early January after sea attacks by Yemen’s Houthis diverted away shipping. The crisis in neighbouring Gaza that started in October has also weakened the tourism outlook.
“Developments over the past month have seen the country being hit hard from various angles and directly to its main revenue generators,” Pieter du Preez of Oxford Economics wrote in a client note this week.
Global credit-ratings agency Moody’s last week downgraded its outlook on Egypt’s sovereign debt to negative from stable.
A $3 billion financial support package from the International Monetary Fund (IMF) signed in December 2022 faltered after Egypt paused on its pledge to move to a flexible exchange rate regime and sell state assets. An IMF team is now holding talks in Cairo on how to revive and possibly expand the package.
The median forecast in a Reuters poll of 14 economists was for gross domestic product (GDP) growth of 3.5% in the fiscal year that began on July 1, down from a previous forecasts for the same year of 3.9% in October and 4.2% in July.
In 2024/25, growth will climb to 4.15%, the latest poll showed, although this is lower than the 4.50% expected by analysts just three months ago.
The central bank last month estimated the economy had slowed to 2.9% in the second quarter of 2023 from 3.9% in the first quarter.
“Real GDP growth is expected to slow down further during fiscal year 2023/24 before gradually picking up thereafter,” the bank’s Monetary Policy Committee said in a Dec. 21 statement.
The poll’s median currency forecast was for the Egyptian pound to weaken to 40.00 to the dollar by end-June 2024 and 43.00 by end-June 2025.
The central bank has kept the pound fixed at 30.85 to the dollar since March after having allowed it to fall by nearly 50% against the dollar the previous year.
On the black market, the pound has fallen to about 61 to the dollar from 39 before the Israeli campaign against Hamas in Gaza began in October.
The annual headline inflation rate, at 33.7% in December, has been at record highs since June.
The median forecast for the current financial year was for average inflation to ease to 30.80% before slowing to 18.22% in 2024/25.
(Polling by Veronica Khongwir and Anant Chandak; Writing by Patrick Werr; Editing by Christopher Cushing)