The Standard Chartered take on what’s next for the Egyptian economy: The lender’s MENA economist Carla Slim shared what the bank sees in Egypt’s future at a roundtable attended by Enterprise last week. Slim touched on private sector borrowing, inflation and growth predictions, and future mega investments.

ON INFLATION-

Could we be looking at another good month for inflation? The bank expects May’s inflation data to come in at 29.8%, marking its third consecutive dip. With inflation on a downward path, the bank sees the central bank easing monetary policy starting the third quarter of the year, specifically during its meeting scheduled for 5 September. “We expect the CBE to cut rates between 3-5% by the end of 2024,” Slim said.

Remember: Inflation cooled for a second consecutive month in April, falling to 32.5% on the back of slower food price increases as traders continued to price in a lower exchange rate than in the now-defunct parallel market.

The bigger picture: The bank sees inflation falling to around 25% by the end of the year and further cooling to around 20% in 2025, Slim added.

Standing in the way: The rise in food and energy prices as well as the increased liquidity in the market from the Ras El Hekma agreement could prevent inflation from falling as forecasted, Slim said. She added that in order for inflation to dip below the 30% and 20% levels, the central bank needs to absorb this excess liquidity in the market.

The central bank already got the memo: Last month, the central bank pulled a record EGP 1.1 tn in liquidity from local banks — its largest single withdrawal of surplus liquidity from the domestic banking system to date.

What’s next for the EGP / USD exchange rate? Standard Chartered sees the EGP strengthening against the greenback to hit 45 by the end of this year, Slim said. The bank sees the USD trading at EGP 48 next year and at EGP 50 in 2026.

GROWTH FORECASTS-

Egypt is looking at growth of 2-2.2% this quarter, Slim said, pointing to instability in the region and its impact on Suez Canal and tourism revenues. She also cited elevated interest rates and slashed government spending for dragging the country’s growth forecast down.

On the bright side: The economy should be on its path to recovery starting the following quarter, Slim added, explaining that full recovery — with growth rates of 4.5% — should take two years from now. That growth will be driven by some USD 45 bn in green investments rather than government investments.

THE PATH TO NORMALCY-

It will take the private sector two years to go back to borrowing at its normal rate, Slim said, adding that the local private sector will remain “under pressure” until then due to high interest rates. Despite forecasted rate cuts in the short term, rates will remain too high to encourage private sector borrowing.

Seeing another mega agreement of Ras El Hekma’s size will depend on how much excess liquidity Gulf nations have and are willing to deploy in Egypt, Slim said. “Saudi Arabia is the largest issuer of debt instruments among emerging markets this year so far, meanwhile Qatar is using its surplus liquidity to reduce its debt level and boost its FX reserves to improve its credit rating,” she said, explaining that Gulf nations don’t always have excess liquidity.

Tags: