Egyptian economic growth set to slow

EGYPTIAN ECONOMY: Global downturn is set to have a significant impact. (Getty Images)

Egyptian Finance Minister Youssef Boutros-Ghali said on Monday he expected his country's economic growth to slow to between 4 and 4.5 percent in the 2008/09 fiscal year, from 7.2 percent a year earlier.

The economy of the most populous Arab country is already reeling under the weight of the global financial crisis, with a decline in revenues from the Suez Canal and tourism. Foreign direct investment fell to $4 billion between July and December 2008 from $7.7 billion in the same period a year earlier.

"As long as the financial crisis affects the global economy, it will reflect negatively on the Egyptian economy," Boutros-Ghali told Egypt's state-run television.

"This year will be between 4 to 4.5 percent. Maybe 5 but I doubt it. It's 4 to 4.5 percent," he said.

In December, Prime Minister Ahmed Nazif said that the Egyptian government had set its target for economic growth at 5.5 percent for the two years starting July 2008.

"All of the sectors connected with the outside world have dropped - tourism, Suez, exports," he told Reuters later on the sidelines of a pre g20 meeting of African leaders in London.

"All of the things that are not essential have dropped - car sales, white goods, consumer durables. This has caused a drop in tax receipts, my fiscal deficit is going to get worse. Any figure (on deficit) I have is not pleasant."

"Unemployment is going to go up, the impact on our economy is somewhat delayed," he added.

Egypt's gross domestic product (GDP) grew 7.2 percent in the 2007/08 fiscal year, the fastest pace in decades. But in the second quarter of the current fiscal year it grew 4.1 percent compared to 7.7 percent in the same period a year earlier.

Boutros-Ghali said last month that the Egyptian economy faced a "serious contraction" in growth, with companies reducing their activities or cutting jobs.

Reham El-Desoki, a senior economist at investment bank Beltone Financial, said Boutros-Ghali's forecast implies that "growth is more resilient than our expectations".

"We had expected private consumption growth to drop in tandem with the drop in external revenues and the drop in manufacturing activity, leading us to revise down our GDP growth forecasts to 3.2 percent in the 2008/09 fiscal year," she said.

The economy was expected to grow by 2.4 percent in 2009/10, she added in a statement to Reuters.

Simon Kitchen, a senior economist at EFG-Hermes, Egypt's largest investment bank, said a decline in car sales were among signs that private consumption was also weakening.

Ghabbour Auto, Egypt's largest publicly traded car assembly and retail company, this month reported a 4 percent decline in net profit for 2008.

Kitchen said demand for steel, however, appeared to be holding up "which suggests construction and investment are still fairly strong".

EFG-Hermes forecast an economic growth of 3.3 percent this year and 1.4 percent in 2009/10, he added.

The government has approved a stimulus package worth 15 billion Egyptian pounds ($2.7 billion) to be spent mainly on infrastructure projects to create jobs, which could be followed by another 15 billion pounds in the 2009/10 fiscal year.

In a separate interview with the state-run Middle East News Agency, Boutros-Ghali said: "I know we will suffer ... But I do not doubt that in 6 to 8 months we will start rising again". (Reuters)

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