Egypt’s Economic Growth Forecasts Revised Downward Amid Escalating Gaza Crisis

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Egypt’s economic growth is expected to face challenges, at a slower pace than previously anticipated. Factors contributing to this include the weakening of the Egyptian pound, reduced purchasing power due to inflation, and disruptions in foreign currency earnings, particularly from the Suez Canal, which saw a 40% decline in revenue in early January. The crisis in Gaza has also adversely affected tourism, impacting a key revenue source.

Moody’s recent downgrade of Egypt’s sovereign debt outlook from stable to negative reflects the economic challenges the country is confronting. Additionally, a $3 billion financial support package from the International Monetary Fund (IMF) faced setbacks after Egypt paused commitments related to adopting a flexible exchange rate regime and selling state assets. Talks with the IMF are ongoing to revive and potentially expand the package.

The poll conducted by Reuters indicates a median forecast of 3.5% GDP growth for the fiscal year starting July 1, down from earlier forecasts of 3.9% and 4.2% in October and July, respectively. In the following fiscal year (2024/25), growth is projected to reach 4.15%, although this is lower than the 4.50% expected three months ago. The central bank’s Monetary Policy Committee anticipates a further slowdown in real GDP growth during fiscal year 2023/24, with a gradual pickup afterward.

Concerns about the Egyptian pound persist, with the forecast indicating a weakening to 40.00 to the dollar by end-June 2024 and 43.00 by end-June 2025. The central bank has maintained a fixed exchange rate of 30.85 to the dollar since March, following a significant depreciation the previous year. On the black market, the pound has fallen to about 61 to the dollar.

Inflation remains a significant challenge, with an annual headline rate of 33.7% in December. The median forecast for the current financial year predicts an average inflation rate of 30.80%, easing to 18.22% in 2024/25. These economic indicators underscore the complexities Egypt faces in navigating its economic landscape.