IMF predicts Egypt growth less than half government forecast

Middle East needs structural reforms to feed economic growth, according to World Economic Outlook

The IMF is predicting economic growth for Egypt of just one per cent, half that forecast for 2011 by the Egyptian government.
"High unemployment, growing social unrest, and rising food prices are dampening growth prospects, especially in oil-importing economies," says a report published today by the International Monetary Fund (IMF).
Upheaval in the Middle East and North Africa is squeezing growth, slowing recovery from the global economic crisis and underlining the necessity of serious structural reforms," warns the IMF analysis of the MENA region in its April 2011 World Economic Outlook, unveiled Monday morning in Washington DC.
"Spreading social unrest, rising sovereign risk premiums, and elevated commodity import prices will constrain growth prospects," says the report.
"For oil importers, the main priority is to raise growth and tackle chronically high unemployment, especially among young people. For oil exporters, the focus should be to strengthen or develop financial systems and promote economic diversification."
The IMF predicts Gross Domestic Product in the region will grow by 4 per cent in 2011, edging up to 4.5 per cent in 2012, but notes substantial variations between countries depending on their political situations.
Egypt's growth slowed
Egypt, the region's most populous nation, is set to see "a modest dampening effect on economic activity," with the IMF growth forecast of one per cent of real GDP representing a sharp fall from the 5.5 per cent registered in the second half of 2010.
Egyptians may take heart, however, from the prediction that "disruptions to tourism, capital flows and financial markets are expected to be temporary."
The government recently predicted growth of 2.5 per cent for 2011 but the IMF is not the first voice to suggest otherwise.
"2011 will see the strongest hit but the second half will be better than the first. The first half of 2012 will be even better yet," says Mohamed Rahmi, economic analyst at Beltone Financial.
The investment bank's forecast is more optimistic than the IMF's: between 3 and 3.5 per cent for the 2010-2011 financial year (FY) and 4 per cent for FY 2011-2012.
Rahmi emphasises the impact of a drop in EU and US investment due to the political upheaval.
"These are the main foreign investors in Egypt. They mainly invest in the oil and gas sector and are expected to slow down", he says.
"Oil-exporting countries -- which will have record surpluses, due to high oil prices -- won't have a big impact on our economy," he adds. "Remittances of Egyptians working in Gulf countries are expected to remain stable, while Gulf investments are not significant to our growth".
Oil-producers need to guard their fortune
In contrast to importers, oil producers will see Current Account Balances rise by 9.2 per cent this year and 16.9 per cent next, says the IMF report.
The IMF calls the main policy challenges for the region "daunting" and fingers "chronically high unemployment" as a "long-standing challenge" in the region that "must be tackled urgently".
"The fact that unemployment has remained high for so long suggests that the problem is largely structural—stemming from skill mismatches, labor market rigidities, and high reservation wages," it says.
The IMF's analysis come on the heels of a Sunday report from the World Bank.
Justin Lin, the World Bank's chief economist, said that research by the development lender's economists showed that economic output in the Middle East and North Africa, was paying a heavy price for the recent wave of anti-regime upheaval.
"For the region, the Middle East and North African countries, the impact can be about 2.4 percentage points," he said.
But their findings also challenged the long-held view that economic growth alone was sufficient to stem conflict.
The World Bank's World Development Report showed instead that access to jobs, security and justice, not higher gross domestic product, are key to breaking repeated cycles of political and criminal violence.