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EGYPT: ECONOMY TO GROW 4.0% IN 2017.

Summary: Barclays lately issued its Egypt quarterly outlook report, in which it said that the EGP devaluation and move towards a floating exchange rate regime is a positive step, as is the increase in energy prices ahead of the US$ 12 billion IMF program approval.

Barclays lately issued its Egypt quarterly outlook report, in which it said that the EGP devaluation and move towards a floating exchange rate regime is a positive step, as is the increase in energy prices ahead of the US$ 12 billion IMF program approval. In the short term, growth acceleration will be contained by fiscal consolidation and dampened private consumption as inflation rises. The imminent disbursement of US$ 5 billion in donor funding and slow return of portfolio flows should bolster FX reserves, but pressure on the EGP is unlikely to dissipate soon, given large external imbalances. The decision to devalue the EGP and move towards a market clearing exchange rate regime should help in regaining competitiveness gradually, while the dismantling of remaining FX restrictions should support increased investment. In the short term, however, higher inflation due to EGP depreciation, the VAT introduction and higher energy prices are likely to dampen private consumption growth, while fiscal consolidation measures should constrain public investment and consumption. Therefore, Barclays expects GDP growth to have remained weak in the first half of FY 2016/2017 and to accelerate slightly in the second half, pushing overall growth to 4% year-on-year only this FY (estimate of 3.8% in FY 2015/2016). Beyond December 2017, Barclays expects growth to accelerate gradually as export growth picks up and private investment growth rises, owing to moderating inflation and the implementation of structural reforms. The sharp weakening of the EGP notwithstanding, challenges on the external front are unlikely to dissipate rapidly.

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Publication:EMBIN (Emerging Markets Business Information News)
Geographic Code:7EGYP
Date:Dec 20, 2016
Words:312
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