Due to recent government actions, including the new income tax law and trade liberalisation, the rate of economic growth is improving and expectations are high, Mona El-Fiqi finds out According to figures from the Ministry of Planning, the real GDP growth rate was 5.2 per cent in the third quarter of 2004/2005, compared to four per cent in the corresponding quarter of 2003/2004. The government expects real GDP growth rate to remain at approximately five per cent for the full year. The Business Barometer, a biannual study, conducted by the Egyptian Centre for Economic Studies (ECES), an independent, non-profit research institute, stated that businesses viewed economic growth favourably during the first half of 2005 and that most firms are optimistic about the performance of the economy as a whole. The Business Barometer attributed the favourable opinions regarding economic growth to respondents' positive views of Nazif's government, particularly in regards to the new income tax law and trade liberalisation. However, firms' assessments of their own activity for the last six months are less favourable than their assessments for the previous six months. That, according to the Business Barometer, could be the result of several factors, including government absorption of most available credit, exchange rate appreciation, and possibly sluggish domestic demand. The Business Barometer reflects the views of a sample of 210 large firms from the manufacturing, construction and tourism sectors regarding their perception of overall economic performance as well as their assessment of their own activities during the first six months of the year and their expectations for the coming period. The majority of companies reported either higher or stable economic growth during the first six months of 2005 compared to the previous six months. According to the Business Barometer, 87 per cent of the companies expect economic growth to improve or to remain the same during the second half of the year. These views are consistent with official government statistics. Although the majority of firms reported higher or stable final product prices and input prices during the first six months of 2005, more firms reported lower prices compared to the previous survey. The report explained this as a result of, "the recent appreciation of the Egyptian pound and the greater availability of foreign exchange." The sharpest decline in final product prices was reported by manufacturing companies. Tourism firms reported higher prices for both final products as well as inputs, while firms in the construction sector reported stable final product prices but lower input prices. The majority of companies modestly reduced or maintained their level of inventory during the first six months of 2005. More than 90 per cent of companies reported higher or stable levels of investment. Tourism firms reported the highest level of investment followed by manufacturing firms while construction companies reported a sharp decline. As for employment, the majority of companies reported lower or stable levels. The construction companies reported the sharpest decline followed by tourism and manufacturing firms. According to the Business Barometer, access to finance, limited demand and lack of skilled workers are the most severe constraints. To speed up economic recovery, the report, said it is important to address a number of short-to-medium run concerns. In the short run, it is necessary to make more credit available to the private sector since most credit has gone to the government in recent years. Another concern is exchange rate competitiveness, especially since the nominal rate has remained fairly constant in recent months despite large inflation differentials between Egypt and its major trading partners. "Absent action in this respect, may dampen the surge in non-petroleum exports." added the Business Barometer. A third concern is related to the growing fiscal deficit, which has increasingly absorbed a large chunk of domestic savings. In the medium run, achieving sustainable economic growth, according to the report, will require the completion of the structural reform programme which involves further reform of the financial sector. Moreover, it entails accelerating the privatisation process and removing the most binding institutional constraints, particularly those related to exit policy and conflict resolution. "For economic growth to benefit all actors in society, the reform agenda should also involve bold initiatives in the social sectors (education and health) as well as the formalisation of the large extra-legal sector." reported the Business Barometer.
