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publication April 2, 2021

Egypt's Economic Update ¡ª April 2021

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Economic activity and employment started resuming, yet the resurgence in COVID-19 cases is clouding the nascent economic up-tick. Pressures arise from the severely affected foreign income sources (tourism, goods exports, FDI), but remittances, port-folio inflows and external financing continue to support international reserves. Besides pandemic-containment efforts, pushing ahead with macro-fiscal and structural reforms, strengthening social protection and advancing the human capital agenda will be crucial for a strong recovery.

Recent Developments

Growth inched up in Q1- and Q2- FY2020/21 (July-September 2020 and October-December 2020) after easing of COVID-19-related restrictions, but remained low at 0.7% and 2%, respectively (up from a contraction of 1.7% in Q4-FY2019/20). Unemployment also declined to 7.2% by Q2- FY2020/21 (after spiking at 9.6%, six months earlier), with the gradual resumption of economic activity, and the continuation of megaprojects throughout the crisis. Both labor force participation and employment rates rebounded from their large (short-lived) dip, although remaining below-potential at 43.5% and 40.4% of the working-age population. Key exposed sectors, such as tourism, manufacturing, the Suez Canal and oil and gas extractives continue to be impacted by travel restrictions, the slump in demand and disruptions to domestic and global supply chains and trade.

 

Outlook

Private consumption is expected to be partially supported by remittance inflows, expanded social protection, lower inflation (favorable for households¡¯ purchasing power) as well as monetary easing. Pre-pandemic labor markets trends, such as the fall of real earnings and the rise of informality, are now compounded by the income losses due to the COVID-19 shock, especially among informal workers. This can lead to an uptick in the poverty rate. If the vaccine is sufficiently deployed by early-2022, Egypt is expected to gradually regain growth momentum during FY2021/22¡ª23.