Egypt Quarterly: Q2 2019

• Growth outlook:  We forecast real GDP growth of 5.3% in Egypt in the current fiscal year (ending June), rising to 5.7% in 2019/20 and 5.9% in 2020/21. This is moderately less bullish than the government’s projections, which envisage growth of 6.0% next year.
• Fiscal policy:  Over the coming years we expect a further narrowing in Egypt’s budget deficit, forecasting a shortfall equivalent to 7.2% of GDP in 2019/20 and 6.3% in 2020/21, down from a projected 8.5% in 2018/19 (ending June 30) and an average 10.6% over the previous decade.
• Balance of payments:  Having narrowed markedly from 6.4% of GDP in FY 2016/17 to 2.5% last year, we expect a more moderate decline in Egypt’s current account deficit, projecting a shortfall of 2.0% this year and 1.8% in 2019/20.
• Monetary policy:  With the Central Bank of Egypt (CBE) having held its key benchmark rates static at its March 28 meeting, it seems likely that the overnight deposit and overnight lending rates will now remain at 15.75% and 16.75% respectively over the course of the summer months before cutting resumes later in H2.
• Egyptian pound:  The Egyptian pound has strengthened to levels not seen since March 2016, trading at EGP 17.15/USD at the time of writing on May 6, compared to the EGP 17.90/USD around which it had hovered over the nine-month period from May through to January. While we do not anticipate that the trend will continue through the year, we have nevertheless revised our projections, and now envisage a year-end exchange rate of EGP 17.75/USD, compared to our previous outlook of EGP 18.00/USD.

Real GDP growth, % y/y

Source: Havers Analytics, Emirates NBD Research

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