2013-03-11 12:20:19 - New Country Reports market report from Business Monitor International: "Egypt Business Forecast Report Q2 2013"

Core Views

The Egyptian economy is set to 'muddle through' 2013, with fixed investment and household consumption likely to remain particularly weak. Sporadic outbursts in public unrest and ongoing 'policy drift' will continue to undermine a more pronounced economic recovery.

Egypt will have little choice but to make more pronounced reforms to its domestic energy subsidy system. We do not expect any major reforms ahead of parliamentary elections in April however.

The combined impact of currency devaluation and hikes to domestic energy prices will push consumer price inflation back into the double digits by the end of the year.


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Egypt's geopolitical importance will ensure that even if an IMF agreement is delayed for longer than expected, further

foreign aid commitments will materialise over 2013. Western powers such as the US and EU have an interest in ensuring the North African country does not experience a more pronounced economic and political crisis.

Major Forecast Changes

We have revised our outlook on the Egyptian pound, and now expect the currency to average EGP7.3000/US$ in 2013

In light of a further deterioration in the political environment, we have lowered our real GDP growth forecasts, and now project the economy expanding 2.6% and 3.6% in FY2012/13 and FY2013/14 respectively.

Key Risks To Outlook

A failure to secure external financing (whether through the IMF or bilateral aid) raises the risks of a disorderly devaluation of the Egyptian pound.

Egypt may become stuck in a protracted democratic transition, in which case long-term growth would fall well below potential.

Partial Table of Contents:

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics 1
Coup Risks Rising
- Egypt is at risk of a military coup, if President Mohamed Morsi continues to lose control of the country, or is perceived as such. However, if the armed forces were to seize power, this would risk polarising the country further.
Domestic Politics 2
Bottom Line: No Easy Way Out
- Egypt is slowly heading towards the brink, as the country's dysfunctional political environment continues to undermine economic stability. We expect 2013 to be characterised by policy drift, with the government's willingness to pursue structural reforms likely to be minimal.
Long-Term Political Outlook
Four Scenarios For The Coming Decade
- Egypt's transition to a fully fledged democracy is likely to take several years at least, and there is no guarantee that it will achieve this goal.
TABLE: POLITICAL OVERVIEW
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Stuck In A Rut
- The Egyptian economy is unlikely to stage a more pronounced recovery in the near term. Without a stabilisation in the political environment or greater clarity on medium-term policy, consumption and investment patterns will remain depressed.
TABLE: GDP BY EXPENDITURE
Balance of Payments
BoP: In The Eye Of The Storm
- Egypt's balance of payments position remains under strain, with only foreign aid and remittances helping to avert a more pronounced crisis.
TABLE: EGYPT - CURRENT ACCOUNT
Fiscal Policy
IMF Agreement: Taking Stock
- Following the announcement that Egypt and the IMF had agreed to delay the start of the long-awaited US$4.8bn Stand-By Arrangement until January, the North African country once again finds itself at a crossroads.
TABLE: FISCAL POLICY
TABLE: EGYPT'S PROPOSED TAX REFORMS
TABLE: EGYPT'S PROPOSED IMF AGREEMENT
Monetary Policy
Inflation Will Trend Higher
- We project consumer price inflation in Egypt accelerating through 2013, to come in at 11.0% at the end of the year, compared to 4.6% in December 2012. The impact of the pound's devaluation and a hike in energy prices will be sufficient to push prices higher at a time when economic activity remains weak.
TABLE: MONETARY POLICY
Exchange Rate Outlook
EGP: Risks Of Disorderly Devaluation
- We retain a bearish outlook on the Egyptian pound. For us, it is not a matter of if the currency will weaken further, but rather, by how much. We are forecasting the currency to average EGP7.3000/US$ in 2013.
TABLE: BMI EGYPT CURRENCY FORECAST
Regional Outlook
Subsidy Reform: Is The Time Nigh?
TABLE: MENA - KEY ECONOMIC INDICATORS
TABLE: MENA - KEY VARIABLES IN DETERMINING PROSPECTS FOR REFORM
TABLE: MENA - EVOLUTION OF ABILITY TO PAY
Regional: Sovereign Risk Ratings
The Calm Before The Storm?
TABLE: MENA - EVOLUTION OF WILLINGNESS TO PAY
Chapter 3: 10-Year Forecast
The Egyptian Economy To 2022
Policy Uncertainty Weighs On Outlook
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: MENA - ANNUAL FDI INFLOWS
Market Orientation
TABLE: TRADE AND INVESTMENT RATINGS
TABLE: TOP EXPORT DESTINATIONS, 2001-2009
Operational Risk
Chapter 5: Key Sectors
Autos
TABLE: EGYPT AUTOS PRODUCTION, 2011-2017
TABLE: EGYPT AUTOS SALES, 2011-2017
Food & Drink
TABLE: FOOD CONSUMPTION INDICATORS - HISTORICAL DATA & FORECASTS, 2010-2017
TABLE: HOT DRINKS VOLUME SALES, PRODUCTION & TRADE - HISTORICAL DATA & FORECASTS, 2010-2017
TABLE: MASS GROCERY RETAIL SALES - HISTORICAL DATA & FORECASTS, 2010-2017
Other Key Sectors
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS

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