Downward trend continues

A prominent local economic think-tank foresees no respite from the economic slowdown in Egypt until the end of the year. Mona El-Fiqi reports
The "Business Barometer", a biannual study conducted by the Egyptian Centre for Economic Studies (ECES), expects the continuation of the economic downturn during the second half of the current year. The study, which reflects the views of the business sector in manufacturing and construction about the state of economic activity during the first half of 2001, as well as their expectations for the second half, said 91 per cent of the firms surveyed describe economic growth as stagnant or declining. Even worse, businessmen do not expect a turnaround until the end of the year.
According to the study released last week, this negative view could mean that the fiscal and monetary measures recently undertaken by the government have not been sufficient to improve prospects in business circles. It also could be the result of the time lag inherent in fiscal and monetary measures. In either case, the message for policy-makers is that the business sector is now following a policy of "wait and see" with respect to production, investment and employment.
Compared to the second half of 2000, the monthly averages of industrial utilisation of electricity, the ratio of domestic credit to total deposits, the ratio of market capitalisation to GDP and imports of both intermediate and capital goods have all declined.
Moreover, the number of newly established companies has decreased and cases of bankruptcy have been on the rise.
The government has revised official GDP figures downward from 6.5 per cent to 5.1 per cent for fiscal year 1999/2000 and to 4.9 per cent for fiscal year 2000/2001. However, some observers estimate GDP figures for the latter period at no more than four per cent.
On the bright side, the study revealed that the majority of surveyed firms reported the same or higher levels of international sales during the first half of the current year. While the figures show an increase in total and non-petroleum exports, domestic sales were stagnant due to weak local demand.
The level of inventory in the first half of 2001 remained stationary as well.
Consistent with the slowdown of economic activity, the majority of survey respondents reported stable or modestly falling final product prices during the first half of 2001.
Investment levels in most of the business sectors remained unchanged compared with those in the previous half-year period, with some firms investing less in sectors such as metal products, ready-made garments and transport.
Moreover, indicators show that there has been no noticeable change in employment.
Both public and private firms cited market demand as the most severe constraint, followed by lack of capital, access to imports and skilled workforce, in that order.
Though the recent devaluation of the Egyptian pound versus the US dollar occurred after the survey was conducted, the study said the widening of the band of the exchange rate regime is expected to ease the liquidity problem and make exports more competitive.
Provided the government also keeps the fiscal deficit in check, signs of recovery could soon be observed. For the recovery to be sustainable, the study said further measures are needed, such as speeding up the privatisation programme, improving the efficiency of the financial sector and taking more steps towards trade liberalisation.
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