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Marketwatch: Egypt’s euphoria gives way to hard economic realities

ME economist Said Hirsh explains why he expects the nation’s unemployment rate to remain in the double digits for at least the next 12 to 18 months.
31.08.11 | Interesting article at Marketwatch

Euphoria over Egypt’s overthrow of the Mubarak regime earlier this year is giving way to hard economic realities.

Egypt’s second quarter unemployment data reflects the poor overall state of the nation’s economy and that won’t change anytime soon, according to Capital Economics.

Data show that Egypt’s unemployment rate stood at 11.8% for the second quarter, down slightly from 11.9% in the first quarter, but the quarter on quarter change is “negligible and means that the jobless rate is higher than at any other point over the past five years,” said Said Hirsh, Middle East economist at Capital Economics, in a note Tuesday.

Hirsh expects the nation’s unemployment rate to remain in the double digits for at least the next 12 to 18 months. Here’s why:

1) Over 95% of the jobs generated in Egypt over the past five years were in the private sector, which was driven in part by large inflows of foreign direct investment into the services and industrial sector. However, foreign capital inflows to the country will likely fall over the next 12 months.

2) The tourism and industrial sectors, which employ over 25% of Egyptians and have accounted for over a third of jobs created over the past five years, have yet to recover from the impact of January’s revolution.

3) Egypt’s public finances are constrained given the government’s commitment to food and fuel subsidies.

Given all of that, “there seems to be no end in sight for unemployed Egyptians,” said Hirsh.

“The country’s GDP needs to grow by at least 5% before it starts to generate enough jobs for the new entrants to the labor market as well as those made unemployed by the recent turmoil,” he said. “We don’t think that this is likely to happen until the second half of next year at the earliest.”