Egypt economy may recede despite gains last year

Egypt's economic growth expanded slightly in the fourth quarter but the rebound is unlikely to have stopped the country slipping into its first full-year recession in at least half a century.

GDP expanded 0.4 per cent in the three months that ended on December 31 compared with growth of 0.2 per cent in the previous quarter, according to a ministry of planning and international cooperation report, cited by Bloomberg News.

The report confirmed "fears that the economy contracted last year for the first time since at least the 1960s," said Said Hirsh, a Middle East economist at Capital Economics. "Egypt was definitely in recession last year," he said. "Key sectors of the economy like tourism have been hit and manufacturing output was also down but the country still had income from the Suez Canal."

It meant Egypt's GDP contracted by 0.8 per cent across the full year, he said. A recovery in the construction and tourism sectors helped to arrest the slide in the fourth quarter. Construction dipped by 0.6 per cent, a smaller contraction than the 2.8 per cent fall in the previous three months, Bloomberg reported, citing the report. Tourism fell 6.5 per cent in the fourth quarter after slipping 10.4 per cent in the previous quarter.

Egypt's economy has been striving to rebound after a revolution removed former president Hosni Mubarak and opened up a political vacuum. Progress is being made on the country's path to democracy, with civilian rulers expected to be in place by June.

But the political uncertainty is still deterring efforts to attract foreign investment.

"I am waiting to get some clarity before we invest. If you are buying land you don't want to be caught out," said Mishal Kanoo, the deputy chairman of the Kanoo Group, a diversified conglomerate based in Bahrain with interests spanning travel to insurance. The firm already has a presence within the Egypt's travel industry through its partnership with American Express Travel Services.

Egypt's precarious financial position has sapped foreign reserves by more than half, down to US$15.72 billion (Dh57.74bn), and widened the budget deficit. To ease its problems, the government hopes to sign a $3.2bn loan agreement with the IMF this month that could help entice other foreign aid.

The IMF loan is "crucial," to Egypt's turnaround, said Mr Hirsh.

"Looking forward, we are still concerned about increasing strain on Egypt's balance of payments and mounting pressures on the pound," Mr Hirsh wrote in a research note.

"If the country were to reach an agreement with the IMF and other international donors soon, it may be able to avert a disorderly devaluation."

The country would achieve economic growth of 3 per cent this year, he forecast. That is still below the trend of average 5 per cent expansion Egypt achieved before last year.