Middle East – Egypt Economic Update

Egypt Economic Update – October 2024

• Economic growth. In its latest bi-annual update to its World Economic Outlook (WEO), the IMF projects Egypt’s GDP growth to reach 2.7% (3.0% previously) and 4.1% (4.4% previously) in 2024 and 2025, respectively. On net, Egypt has dealt successfully with economic losses triggered by the regional conflict through a combination of pragmatic policy action, as well as extensive bilateral and multilateral support.

• IMF Programme. IMF officials have provided several comments in response to the Egyptian government’s request earlier this month to extend some of the key targets and timeline of the existing programme, particularly those related to electricity and fuel price hikes.

• Inflation. Inflation mildly increased from 26.2% y/y in August to 26.4% y/y in September. The inflation uptick follows a disinflationary trend that was interrupted in August by rising fuel and electricity prices.

• Interest rates. The CBE kept its deposit and lending rates on hold at 27.25% and 28.25%, respectively on 17 October – marking the fourth consecutive rate hold, as the country deals with rising inflation and potential regional instability. The CBE cited risks from regional tensions, higher international commodity prices, and fiscal measures as reasons for maintaining the rates.

• FX view. The Fed’s large frontloaded rate cut is constructive for frontier EM FX, such as the EGP. FX reserves are still on a benign upward path, which also goes in line with the authorities’ bias for limited FX volatility in order to keep disinflation on track, reflected by a closed gap between the official and parallel rates. Furthermore, unlike in other EM frontier markets, Egyptian real rates are positive, which is a key trigger of portfolio inflows into the EM frontier local trade.