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Egypt: Latest indicators confirm modest recovery underway

Egypt: Latest indicators confirm modest recovery underway

A number of economic indicators now confirm that Egypt’s economy is seeing accelerating growth, though the pick-up appears to be tentative. New GDP, credit, PMI, employment and tourism figures all confirm an improving trend in economic activity. While time is quickly running out for reforms to address Egypt’s ballooning fiscal deficit and precarious external position, it appears those risks have been pushed back for the time being. The recent scheduling of presidential elections for the end of May should move the political transition along and bring the country closer to a government with the broad mandate and political support to tackle tough reforms before the end of 2014.

Economic growth accelerated in 4Q13 following a slowdown earlier in the year. Real GDP growth rose to 1.3% year-on-year (y/y) in the quarter ending Dec-13, compared to growth of 1% the prior quarter. The production index also shows an improving trend in economic activity, as the index narrowed its y/y decline to 6.8% in Jan-14 compared to a 20% decline in Sep-13. The index tracks real GDP growth well. According to our estimates, the January index figure implies economic growth of around 2%.

Credit growth also confirmed a pick-up in activity, accelerating for a second consecutive month in February. The month saw total credit to the private sector increase at an annualized 12% month-on-month (m/m) following 11% growth in Jan-14. Y/y growth was lower than this at 5.5% on the absence of growth between Jul-13 and Dec-13.

Egypt’s PMI maintained its improved level with the index coming in at 49.8 in March. This makes it the sixth consecutive month of a figure above or around 50; and while the index shows that producers are more positive about their outlook than they were six months ago, the optimism remains cautious.

Other indicators also show improvement, including tourism and employment. 4Q13 saw the largest net increase in the number of employed since 2011, with employment up 164,000. Though this hardly made a dent in the unemployment rate (13.4%), it shows a gradual recovery is underway. Meanwhile, though tourism remained well below levels of a year ago, it has been improving gradually.

The stock market continued to perform well, though it has pulled back somewhat in the last week. The market has done well since last summer, gaining as much as 82% since it bottomed out in June 2013 and 22% thus far in 2014.