Cairo - Mubasher: Capital economics expects inflation rate in Egypt to jump in the coming months, and to hit 20% in 2017, and 12.5% in 2018, according to a recent report.
The surge in inflation rates is attributed to the pound fall which led to an increase in import costs, as well as the measures taken by the government to tighten fiscal policy such as the implementation of VAT and fresh subsidy cuts.
“Egypt’s economy is likely to slow sharply in 2017 as the steep fall in the pound pushes inflation up and fiscal and monetary policy are tightened. But with an IMF deal now in place and the government making good progress on reforms, growth should pick up from 2018,” stated the report.
“We do think that the pound will weaken further over the next couple of years, but the big adjustment has probably now happened.”
“The central bank has hiked interest rates by 300bp since the float, but we think it has more work to do.”
The research firm also expects growth to slow in 2017 to just 1.0%, well below the consensus forecast of 3.3%.
A slow recovery should take place in 2018 as inflation eases, monetary policy begins to be loosened and the supergiant Zohr gas field comes on stream.
“Egypt should be able to take advantage of the boost to competitiveness from a weaker pound, which will help to narrow the current account deficit. And there are already signs that foreign investors are returning to the country.”
“Under the auspices of the IMF, further economic reform is likely which will act as an additional pull for foreign investors. All of this should support stronger medium-term growth,” the report concluded.
