The latest Business Barometre reveals a gradual economic recovery and cautiously optimistic expectations. Mona El-Fiqi scans through it Due to a range of confidence-building measures taken or being considered by the new government appointed in July 2004, "economic recovery has been slow but steady", according to the Business Barometer, a biannual survey conducted by the Egyptian Centre for Economic Studies (ECES). The most important of these measures are the reduction and simplification of customs tariffs, a proposal to reduce the highest income tax rate to 20 per cent and exchange rate convergence and seeming stability. Compared with evaluations of the past two years, the trend of most economic indicators has been moderately positive, according to the Business Barometer. However, expectations for the first half of 2005 are characterised by Business Barometer as "guardedly optimistic". Although firms expect higher economic growth, production, and exports, they anticipate no change in recent trends of investment and employment. Moreover, they expect an increase in the prices of inputs and outputs. Reservations about the next six month, according to the Business Barometer, may be due to concerns about the growing fiscal deficit, lack of clarity in monetary policy, and the unfinished structural adjustment agenda. The government announced that some measures are being considered to deal with these concerns. On the fiscal deficit, the government expects an economic recovery to offset the short term fall in revenues resulting from trade liberalisation and tax reforms. Regarding monetary policy, the Central Bank of Egypt is preparing the groundwork for the implementation of inflation targeting within the next two years. As for the structural adjustment, plans have been announced to reactivate the privatisation programme, strengthen the financial sector and adopt measures to improve the business environment. If and when these expectations are fulfilled and reform measures are undertaken, the Business Barometer reported that the Egyptian economy is likely to reach its full growth potential given available resources. Moreover, attracting significant capital inflows from abroad and achieving sufficiently high levels of economic growth to eliminate unemployment and create jobs for the new entrants to the labour market will require even greater reform efforts. On the downside, inflationary pressure took a turn for the worse last year, unemployment has not subsided and foreign direct investment has remained meagre. According to the Business Barometer, the monetary policy has been tight to support the Egyptian pound and curb inflation, while credit to the private sector has been trending downward. All of these factors are hindering a more rapid economic recovery. Further reform effort is recommended by the Business Barometer, particularly with respect to fiscal and monetary policies as well as the financial sector. The Business Barometer, issued recently, reflects the views of a sample of 210 firms from the manufacturing, construction, and tourism sectors regarding their economic activity during the second half of 2004. The majority of firms reported fairly good news about their production, domestic sales, prices, employment and investment. They reported that economic activity picked up in the last six months of 2004. As for the next six months, 73 per cent of respondents expect real Growth Domestic Product (GDP) to continue rising. These views are consistent with official government statistics. According to the Ministry of Planning, the real GDP growth rate was 4.8 per cent in the first quarter of 2004/2005, compared to 4.2 per cent in the same quarter of 2003/2004. The government expects the real GDP growth rate to be close to five per cent for the full year. Moreover, 82 per cent of the respondents reported higher or stable production levels during the last six months of 2004, while the next six months should see a modest net increase in overall production. The Business Barometer also reported that the majority of respondents had higher or constant domestic sales. In contrast, fewer companies reported higher or stable exports in this survey. Manufacturing firms registered the lowest increase in exports. With respect to the next six months, close to 90 per cent of companies expect higher or stable domestic and international sales, and the majority of firms are planning to keep the same level of inventory or deplete it to meet the expected increase in demand. The Business Barometer reviews the companies' assessment of economic growth and the results of their operations in terms of their production, sales, inventories, prices, wages, employment and investment over the last six months of 2004.
