Egyptian Economy to Contract 3.3% This Year, EFG-Hermes Says

Egypt’s economy may contract 3.3 percent this year, EFG-Hermes Holding SAE said, instead of the 2.5 percent it estimated in February after the uprising that ousted Hosni Mubarak from the presidency.

“Consumption remains significantly down” on a year-on- year basis, EFG, the biggest publicly traded investment bank in Egypt, said in a statement. “We expect a weaker recovery in investment, which will require greater clarity on the political environment.”

The economy is still reeling from the unrest that erupted in January and hit revenue from industries such as tourism. The economy contracted at an annual rate of 4.2 percent in the quarter that ended in March and investment decreased 26 percent in the same period, the central bank said on June 9.

EFG estimates that real gross domestic product growth will be 3 percent in 2012. This will be “led by a recovery in private consumption and supported by increased tourism, although political developments remain a key factor,” it said.

The ruling military council, which took over interim authority when Mubarak stepped down on Feb. 11, says it will hand over power after parliamentary elections, expected later this year, and a subsequent presidential vote. Political groups have sparred over the timing of elections and the process of writing a new constitution.
‘Political Tension’

“Egypt’s economic outlook will remain predominantly subject to political developments over the coming months, with the election results likely to provide more clarity on the country’s economic outlook,” EFG said. “Until then, economic activity is likely to be dampened by short periods of instability and rising political tension, as well as policy uncertainty and an unstable security situation.”