April 24, 2019 / 2:42 PM / a month ago

Egypt's economy seen growing 5.5 pct in year to end of June

CAIRO (Reuters) - Egypt’s economy is expected to grow 5.5 percent in the fiscal year that ends in June, according to economists polled by Reuters, a forecast slightly higher than the one offered by a survey three months ago but lower than the government’s target.

The economy, with the exception of the oil industry, has struggled to attract foreign investors since the 2011 uprising that unseated Hosni Mubarak.

Egypt’s non-oil private-sector activity contracted for the seventh consecutive month in March, according to the Emirates NBD Egypt Purchasing Managers’ Index (PMI). Privatesector activity has expanded in only five months over the last three years.

“Medium-term economic growth is underpinned by improving fiscal finances, reforms to strengthen the business environment and rising investment in key sectors,” said Nadene Johnson, an economist at NKC African Economics. “But structural constraints are keeping the growth forecast slightly subdued.”

On Tuesday, Egypt’s election commission said nearly 90 percent of voters in a referendum had approved constitutional changes, a move that could allow President Abdel Fattah al-Sisi to stay in power until 2030.

Sisi’s supporters say he has stabilised Egypt and needs more time to reform and develop the economy. Critics fear the constitutional changes will curb political competition and debate, leading to a long period of one-man rule.

Aiming to shore up investor confidence, Egypt has been implementing economic reforms as part of a three-year, $12 billion agreement with the International Monetary Fund in November 2016. The reforms included a value-added tax, cuts to energy subsidies and a steep currency devaluation.

The median forecast from 20 economists polled April 8-22, before the referendum result, put growth at 5.5 percent in the current 2018/2019 fiscal year, lower than the government’s target. Three months ago, the median of 14 economists predicted 5.3 percent GDP growth.

Medians projected 5.6 percent GDP growth in the fiscal year ending in June 2020 and 5.7 percent in the 2020/2021 fiscal year.

Egypt is targeting growth at 5.6 percent in the 2018/2019 fiscal year, Finance Minister Mohamed Maait said in February, compared with its previous target of 5.8 percent. It targets 6.1 percent growth in 2019/2020.

Economic growth will be “fuelled mostly by government spending on national projects and infrastructure,” said Yara Elkahky, an economist at Naeem Brokerage. “Household consumption growth, however, is expected to remain muted as purchasing power still remains tight.”

The new consensus put Egypt’s urban consumer inflation at down from the 15.5 percent projected three months ago.

Annual urban consumer price inflation slowed to 14.2 percent in March from 14.4 percent in February. It is expected to decelerate to 12.0 percent in the 2019/2020 fiscal year and 9.6 percent in the 2020/2021 fiscal year.

Core inflation, which strips out volatile items such as food, fell to 8.9 percent in March from 9.2 percent in February.

Millions of Egyptians live below the poverty line and struggle to meet basic needs. They have faced rising costs since the pound was floated.

Most remaining fuel subsidies are due to be lifted by mid-June.

Elkahky expects inflation “to continue declining amid normalised supply levels and seasonality impacts,” adding that inflation could drop further as the Egyptian pound appreciates against the dollar.

“Risks to fiscal sustainability are still substantial,” said Maya Senussi, senior economist for the Middle East at Oxford Economics. She added that “could weigh on the general thrust of the (government’s economic reform) policy.”

(For other stories from the Reuters global long-term economic outlook polls package see)

Polling by Md Manzer Hussain in Bengaluru, reporting by Yousef Saba, editing by Larry King

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