Egypt’s GDP growth seen slowing to 5.5% in current fiscal year: poll

Egypt’s non-oil private-sector activity contracted for the second consecutive month in June, according to the Emirates NBD Egypt Purchasing Managers’ Index. (AFP)
Updated 24 July 2019
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Egypt’s GDP growth seen slowing to 5.5% in current fiscal year: poll

  • Egypt’s economy has struggled to attract foreign investors since the 2011 uprising that ended Hosni Mubarak’s 30-year rule
  • Egypt’s non-oil private-sector activity contracted for the second consecutive month in June

CAIRO: Egypt’s economic growth is expected to slow to 5.5 percent in the fiscal year that began this month, below the government’s target, and 5.8 percent the following year, a Reuters poll showed, as Cairo nears the end of an IMF-backed economic reform program.
The forecasts were similar to a Reuters survey of economists released three months ago but fiscal 2019/20 growth was seen lower than the government’s target of 6 percent.
Prime Minister Mostafa Madbouly said last week Egypt’s gross domestic product (GDP) grew 5.6 percent in the 2018/19 fiscal year, a bit higher than the 5.5 percent expected in the April Reuters poll.
Barring the oil industry, Egypt’s economy has struggled to attract foreign investors since the 2011 uprising that ended Hosni Mubarak’s 30-year rule.
Egypt’s non-oil private-sector activity contracted for the second consecutive month in June, according to the Emirates NBD Egypt Purchasing Managers’ Index (PMI). Private-sector activity has expanded in only five months over the last three years.
“Even as leading economic indicators point toward weak consumer spending and stress on local firms, rising investment and government spending are supporting higher economic growth,” said Nadene Johnson, an economist at NKC African Economics.
“Medium-term growth prospects remain promising thanks to the natural gas sector and higher investment, while consumption is expected to recover following the completion of inflationary reforms.”
Earlier this month, Egypt introduced its latest round of fuel subsidy cuts, raising prices by 16-30 percent, as it nears the end of the IMF program.
Scaling back fuel subsidies that have been a strain on the budget for decades was a key plank of the three-year, $12 billion reform package signed with the International Monetary Fund in 2016, as Egypt’s economy struggled to recover from the turmoil that followed the 2011 uprising.
Other reforms included a sharp devaluation of the Egyptian pound and the introduction of a value-added tax.
“Rising fuel and electricity prices in association with energy subsidy reforms will keep inflation elevated in the coming months,” Johnson said. She expects the Central Bank of Egypt (CBE) to cut rates by 100 basis points in the fourth quarter of 2019.
Median forecasts from the poll showed predicted 5.8 percent GDP growth in the fiscal year ending in June 2021 and 5.5 percent in the 2021/2022 fiscal year.
To fuel growth, “interest rates need to be cut by at least 300 basis points,” said Allen Sandeep, head of research at Naeem Brokerage.
“And hopefully, that would increase spending and investments, and also ease the tightness in liquidity which we are currently witnessing,” he said.
The new consensus sees Egypt’s urban consumer inflation at 13.0 percent in the 2019/20 fiscal year, down from the 14.2 percent predicted three months ago for the prior fiscal year.
Annual urban consumer price inflation plunged unexpectedly to 9.4 percent in June from 14.1 percent in May, before fuel prices were raised.
Analysts expect headline inflation to decelerate to 10.9 percent in the 2020/21 fiscal year and 9.0 percent in the 2021/2022 fiscal year.
Core inflation, which strips out volatile items such as food, fell to 6.4 percent in June from 7.8 percent in May.
Millions of Egyptians live below the poverty line and struggle to meet basic needs. They have faced rising costs since the pound was devalued in November 2016.
Angus Blair, chairman of business and economic forecasting think-tank Signet, said Egypt’s inflation has long been higher than global averages.
“There has been some success in bringing the inflation rate down,” he said.
“But concerns will remain around food price inflation pressures, particularly due to potential temperature changes affecting agricultural supplies within Egypt and globally.”


Squabbles erupt as G7 leaders open summit in French resort

Updated 25 August 2019
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Squabbles erupt as G7 leaders open summit in French resort

  • Disputes on trade, climate may eclipse Macron’s agenda
  • EU’s Tusk warns of lack of global unity, spars with Johnson

BIARRITZ, France: Squabbles erupted among G7 nations on Saturday as their leaders gathered for an annual summit, exposing sharp differences on global trade tensions, Britain’s exit from the EU and how to respond to the fires raging in the Amazon rainforest.
French President Emmanuel Macron, the summit host, planned the three-day meeting in the Atlantic seaside resort of Biarritz as a chance to unite a group of wealthy countries that has struggled in recent years to speak with one voice.
Macron set an agenda for the group — France, Britain, Canada, Germany, Italy, Japan and the United States — that included the defense of democracy, gender equality, education and the environment. He invited Asian, African and Latin American leaders to join them for a global push on these issues.
However, in a bleak assessment of relations between once-close allies, European Council President Donald Tusk said it was getting “increasingly” hard to find common ground.
“This is another G7 summit which will be a difficult test of unity and solidarity of the free world and its leaders,” he told reporters ahead of the meeting. “This may be the last moment to restore our political community.”
US President Donald Trump had brought last year’s G7 summit to an acrimonious end, walking out early from the gathering in Canada and rejecting the final communique.
Trump arrived in France a day after responding to a new round of Chinese tariffs by announcing that Washington would impose an additional 5% duty on some $550 billion worth of Chinese imports, the latest escalation of the tit-for-tat trade war by the world’s two largest economies.
“So far so good,” Trump told reporters as he sat on a seafront terrace with Macron, saying the two leaders had a special relationship. “We’ll accomplish a lot this weekend.”
Macron listed foreign policy issues the two would address, including Libya, Syria and North Korea, and said they shared the objective of preventing Iran from obtaining nuclear weapons.
Trump later wrote on Twitter that lunch with Macron was the best meeting the pair has yet had, and that a meeting with world leaders on Saturday evening also “went very well.”
However, the initial smiles could not disguise the opposing approaches of Trump and Macron to many problems, including the knotty questions of protectionism and tax.
Before his arrival, Trump repeated a threat to tax French wines in retaliation for a new French levy on digital services, which he says unfairly targets US companies.
Two US officials said the Trump delegation was also irked that Macron had skewed the focus of the G7 meeting to “niche issues” at the expense of the global economy, which many leaders worry is slowing sharply and at risk of slipping into recession.
French riot police used water cannons and tear gas on Saturday to disperse anti-capitalism protesters in Bayonne, near Biarritz. A police helicopter circled as protesters taunted lines of police.
The leaders themselves were gathering behind tight security in a waterfront conference venue, the surrounding streets barricaded by police.

Spat over ‘Mr. No Deal’ Brexit
Macron opened the summit with a dinner at the base of a clifftop lighthouse overlooking Biarritz, where a menu of piperade, a Basque vegetable specialty, tuna and French cheeses awaited the leaders.
Adding to the unpredictable dynamic between the G7 leaders are the new realities facing Brexit-bound Britain: dwindling influence in Europe and growing dependency on the United States.
New Prime Minister Boris Johnson will want to strike a balance between not alienating Britain’s European allies and not irritating Trump and possibly jeopardizing future trade ties. Johnson and Trump will hold bilateral talks on Sunday morning.
Johnson and Tusk sparred before the summit over who would be to blame if Britain leaves the EU on Oct. 31 without a withdrawal agreement.
Tusk told reporters he was open to ideas from Johnson on how to avoid a no-deal Brexit when the two men meet.
“I still hope that PM Johnson will not like to go down in history as Mr.No Deal,” said Tusk, who as council president leads the political direction of the 28-nation European Union.
Johnson, who has said since he took office last month that he will take Britain out of the bloc on Oct. 31 regardless of whether a deal can be reached, later retorted that it would be Tusk himself who would carry the mantle if Britain could not secure a new withdrawal agreement.
“I would say to our friends in the EU if they don’t want a no-deal Brexit then we’ve got to get rid of the backstop from the treaty,” Johnson told reporters, referring to the Irish border protocol that would keep the border between Northern Ireland and EU member Ireland open after Brexit.
“If Donald Tusk doesn’t want to go down as Mr.No Deal then I hope that point will be borne in mind by him, too,” Johnson said on his flight to France.
Johnson is trying to persuade EU leaders to drop the backstop from a withdrawal agreement that was negotiated by his predecessor but rejected three times by the British Parliament as the United Kingdom struggles to fulfill a 2016 referendum vote to leave the bloc.

‘Not the way to proceed’
Despite the Brexit tensions, diplomats played down the likelihood of Trump and Johnson joining hands against the rest, citing Britain’s foreign policy alignment with Europe on issues from Iran and trade to climate change.
“There won’t be a G5+2,” one senior G7 diplomat said.
Indeed, Johnson said he would tell Trump to pull back from a trade war that is already destabilising economic growth around the world.
“This is not the way to proceed,” he said. “Apart from everything else, those who support the tariffs are at risk of incurring the blame for the downturn in the global economy, irrespective of whether or not that is true.”
Anti-summit protests have become common, and on Saturday thousands of anti-globalization activists, Basque separatists and “yellow vest” protesters marched peacefully across France’s border with Spain to demand action from the leaders.
“It’s more money for the rich and nothing for the poor,” said Alain Missana, an electrician wearing a yellow vest — symbol of anti-government protests that have rattled France for months.
EU leaders piled pressure on Friday on Brazilian President Jair Bolsonaro over fires raging in the Amazon rainforest.
Even so, Britain and Germany were at odds with Macron’s decision to pressure Brazil by blocking a trade deal between the EU and the Mercosur group of Brazil, Argentina, Uruguay and Paraguay.
A spokesman for German Chancellor Angela Merkel said not concluding the trade deal was “not the appropriate answer to what is happening in Brazil now.”
The UK’s Johnson appeared to disagree with Macron on how to respond. “There are all sorts of people who will take any excuse at all to interfere with trade and to frustrate trade deals and I don’t want to see that,” he said.