Citi Research: 2012 a lost year for Egypt

This year was a lost one economically for Egypt, according to a new report by Citi Research.

In the Egypt section of their latest report, Global Economic Outlook and Strategy: Prospects for Economies and Financial Markets in 2013 and Beyond, Citi Research said 2012 was a loss in terms of growth and economic reform.

The report mentions the political changes in August that swung power back to President Mohamed Morsy and the Muslim Brotherhood. The research also considers the new constitution and forthcoming parliamentary elections. The preliminary deal with the International Monetary Fund was seen as a positive change initiated by the political leadership to attract more investment. Dwindling foreign reserves was considered a constraint for the new government, giving it little room for manoeuvre and a strong incentive to “keep talking.” Although the signing of IMF deal should help stabilise the economy in the short term, the real question according to Citi Research is whether it will drive a return to higher long term growth rates and whether the current government really has a long-term vision for economic development. If the economy doesn’t improve in the short run, the long term outlook will be bleak.

The report forecast economic performance to 2014; predicting real GDP growth to rise from two per cent in 2012 to 4.2 percent in 2014, the final domestic demand growth to increase from 2.7 to 4.5 per cent, the private consumption growth rate to rise from 0.9 to three percent, and the fixed investment growth rate to double to 7.7 per cent by 2014. Unemployment rates will likely increase from 13 to 15 per cent and the value of US dollar is predicted to reach EGP 6.64 by the end 2014.

The report speaks broadly of emerging markets, saying that during much of the 2000s emerging economies enjoyed rapid export-led growth, large trade surpluses, appreciating real exchange rates and stronger balance sheets as public debt burdens fell and foreign reserves assets increased. The undervaluation of their currencies over the past 10 years helped emerging countries to support export-led growth, thus helped to keep their balance of payments strong.