December 21, 2010 / 2:32 PM / in 7 years

Egypt's economy to grow steadily over next 2 years

CAIRO (Reuters) - Egypt’s economy will grow steadily over the next two years thanks to growing private investment but the expansion will be slower than that forecast by government officials, a Reuters poll showed on Tuesday.

<p>Egyptians look at Queen Mary 2, the world's largest ocean liner, as it crosses the Suez Canal in Ismailia, some 120 km (75 miles) north of Cairo, March 28, 2009. REUTERS/Stringer</p>

The survey of 12 economists predicted gross domestic product (GDP) in the Arab world’s most populous nation would grow 5.4 percent in the fiscal year ending June 2011, based on the median figure. Egypt’s economy is seen growing faster than all Gulf Arab states except Qatar.

Forecasts from 13 economists showed it would grow 5.5 percent the year after, boosted by more private investment and a recovery in Suez Canal and tourism revenue.

“We forecast very steady growth, mainly due to domestic demand and private consumption as well as growth in private investments,” said Mohamed Rahmy, economist at Beltone Financial.

“There is also a gradual recovery in external sectors including the Suez Canal revenues, tourism and non-oil exports.”

The poll forecasts are well below the annual rates of more than 7 percent that Egypt had posted before the global financial crisis hit and the 6 percent annual rate that economists say Egypt must sustain to create jobs.

Egypt’s finance minister said last week he expected the economy to grow by 7 percent in the financial year from July 2011, and 6 percent this year.

Egypt lowered its GDP growth figure for the last fiscal year that ended June 30, 2010 to 5.1 percent from a previously stated 5.3 percent.

SUPPLY SHOCKS

The poll forecast inflation would accelerate to an average of 11.4 percent in the 2010/2011 financial year, before falling to 10 percent the year after.

Economists expect rising food prices to push up inflation in this fiscal year, but with a contained effect the year after.

“We expect that supply shocks will subside, and we see limited impact of vegetable and meat supply shocks on inflation,” said Mohamed Abu Basha, an economist at investment bank EFG-Hermes.

Urban consumer price inflation, the most closely watched indicator of prices, fell in the year to November to its lowest in 15 months at 10.2 percent.

The Central Bank of Egypt held its benchmark overnight lending rate steady at 9.75 percent at its last meeting on December 16, saying inflation was contained but that limited investment and concerns over the global recovery could weigh on the economy.

The Egyptian pound, which fell this week to its weakest level against the U.S. dollar since February 2005 to 5.8021, is seen remaining relatively steady at 5.80 for the financial year ending in June 2011 and the year after.

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