Egypt’s growth seen to slow to 3% in 2016, economists say

With Egypt’s tourism sector in the midst of a fresh downturn and currency devaluation looking increasingly likely, GDP growth in the country is expected to slow to around three percent this year, London-based consultancy Capital Economics (CE) said in a note.

“We estimate that tourist receipts (which are recorded as exports in the national accounts) could fall by as much as $3.5 billion (1.3 percent of GDP) this year,” Jason Tuvey, Middle East economist, said.

As a devaluation of the pound looks increasingly likely, fresh financing from the World Bank and the African Development Bank, as well as $3.2 billion in financial support from Saudi Arabia, has bought the authorities some time.

“Even so, we expect the pound to finish this year at 8.50/US$, compared with 7.83/US$ at present and in line with its value on the black market,” CE added.

Inflation is likely to rise 3-4 percentage points as a result, and would erode households’ real income and weigh on consumer spending. Higher inflation may also prompt the central bank to hike interest rates further.

A weaker pound, however, would enable the central bank to dismantle forex restrictions, and could also help boost external competitiveness and encourage foreign investors back to the country.

The tourism sector is also likely to remain in the doldrums this year as arrivals dropped by 37.8 percent in November on fresh security concerns. Flights to Egypt from a number of countries are not expected to resume for at least another few months.

Egypt’s economic growth, however, could strengthen to four percent from 2017 onwards as medium-term prospects improve, and conditions for growth fall into place after the government’s energy reforms begin to bear fruit.