Dampened expectations, lower economic growth, but improved production are reported by major companies, Sherine Nasr reports The Egyptian Centre for Economic Studies (ECES) Business Barometer (BB) for the second half of 2007 was issued recently, reflecting the views of 474 large firms regarding the overall performance of the economy, The firms also reported on their own activities during the last six months of 2007, and their expectations for the first half of 2008. During the second half of 2007, the majority of firms (48 per cent) reported higher or steady (29 per cent) overall economic growth; while more respondents (23 per cent) reported lower economic growth compared to the first six months of 2007 (14 per cent). The perceptions of the firms regarding economic growth are consistent with actual real GDP growth rates, which reached 6.9 per cent during the first quarter of 2007-2008. This is compared to 7.1 per cent in the corresponding quarter of the previous year, according to the Ministry of State for Economic Development. "Economic growth during the first quarter of 2007-2008 was mainly led by investment," stated the report. "Exports and private consumption which grew by 10.5 per cent and 8.9 per cent, respectively, also contributed largely to the real GDP growth rate. Government spending did not contribute much to the economic growth during the same period." The BB underlined that more firms in the tourism, financial and manufacturing sectors reported an increase in economic growth; while less firms in the construction and transportation sectors reported higher growth. Only communication firms reported a decline in overall economic growth. "According to the Ministry of State for Economic Development, the Suez Canal, construction, tourism and communications activities were the main drivers of economic growth during the first quarter of 2007-2008," it noted. Firms showed conservative expectations regarding economic growth which, according to the report, could mainly be explained by large fiscal imbalances, high inflation and unemployment rates, and mal-distribution of income. "These factors contributed to casting doubts on the sustainability of the high growth rates achieved in the past two years," explained the BB. "Despite efforts to boost economic growth, the issue of social justice represents a major challenge facing the government." On the issue of production, the percentage of firms reporting higher production was highest in the tourism sector, followed by financial and construction firms. The performance of the manufacturing, communications and transportation firms was less than average. "Within the manufacturing sector, the percentage of firms in the wood and furniture, non-metal and paint industries reporting an increase in production was higher than that of firms producing textile and plastic products," revealed the report. The BB pointed out that firms in general were less optimistic about their expected performance during the first half of 2008. "The majority of firms [75 per cent] expect higher or similar [16 per cent] production levels. However, more firms [nine per cent] expect to reduce their production during the first half of 2008 compared to [six per cent] during the last six months of 2007," it said. Unexpectedly, tourism firms were less optimistic, but within the manufacturing sector more firms plan to increase production. While more firms expect lower domestic sales for the first six months of 2008, the majority of firms (75 per cent) anticipate higher and stable (17 per cent) international sales. Nonetheless, they were slightly less optimistic compared to the last six months of 2007. "The less favourable expectations could be explained by the expected impact of the appreciation of the pound," noted the survey, adding that firms intend to increase their exports mainly to African and Arab countries as well as the EU. "Fewer firms expect to increase their exports to the US and to Asian countries," disclosed the BB. "Relatively, more firms in the financial, manufacturing, communications, construction and transportation expect higher exports during the first half of 2008." Similar to the last BB, the majority of firms in this survey expressed their concern over dealing with government bureaucracy and legal procedures. "High input prices, and an insufficient skilled workforce are among the major factors affecting performance," it stated.
