CAIRO: Egypt's growth rate contracted to 6.8 percent in the fourth quarter of fiscal year 2007/08, down from 7.3 percent in the first nine months of the year, hit by a global economic slowdown and soaring inflation rates, said Minister for Economic Development Osman Mohamed Osman. "We are now facing a major challenge which is how to sustain high economic rates at times when the global economy is on the verge of a recession, said Osman at a press conference Wednesday night. A tumbling growth rate in the fourth quarter of last fiscal year that ended in June was no surprise to most economists. "This slowdown in the fourth quarter is a reflection of stronger inflationary pressures on the economy, said Mohamed Abu Basha, economist at EFG-Hermes. "It's caused by an internal component in the economy. External factors such the Suez Canal and tourism are performing very well in the fourth quarter. It's inflation that [shifted the balance], he added. "Private consumption retreated in the fourth quarter because of soaring inflation rates. Upsurges in local energy prices weighed on Egypt's inflation rates, which hiked to a 16-year high in the year to July at 22 percent and is expected to remain high until the end of the year before dropping in 2008. Reeling from crippling inflation and unemployment rates, 9.5 percent of Egyptians slipped below poverty line in fiscal year 2007/08, the minister stated. Economists have attributed inflation in part to government decisions in May to hike fuel prices as part of a package to finance a 30 percent increase in public sector salaries, itself a move to counter low wages and high prices. As for unemployment rates, official figures indicate a slump to 8.37 percent in the fourth quarter of the last fiscal year, down from 9 percent in the previous quarter. However, Othman stated, rates remain relatively high. Abu Basha pointed out that effects of inflation on private consumption were not fully reflected in the 2007/08 figures, but will likely drag real growth to below 7 percent in the current fiscal year. "The fourth quarter of fiscal year 2007/08 is the first time we see [a reflection of] effects of higher inflation rates on the economy, he stated. "Inflation rate recorded a low-base on growth rates in the last fiscal year, but we believe it will post its highest rate by the end of 2008 and ease afterwards. He explained that the current slowdown in growth rates in the fourth quarter points to a further slowdown in the current year, adding that EFG forecasts a 6.2 percent growth in fiscal year 2008/09, mainly triggered by lower private consumption. Economists polled by Reuters last July predicted that the rate of growth of the Egyptian economy will fall to between 4.8 and 6.8 percent in the next financial year which began in July as high inflation hits private consumption. EFG's Abu Basha added that stalling economies in Europe could also play a part in contracting growth rates in Egypt, as revenues from tourism and exports could tumble. The regional investment bank said in August it expected a slowdown in European economies to drag growth in tourism revenue to 18 percent, bringing in $12.5 billion in revenue. Based on EFG's figures, 40 percent of Egyptian exports is with Europe and 50 percent of tourist arrivals in Egypt comes from Europe. All in all, Egypt's annual growth rate grew to 7.2 percent in the fiscal year which ended in June, the fastest pace in at least two decades. The fastest-growing sectors of the economy were tourism at 24.3 percent, Suez Canal revenues at 18 percent, construction at 14.8 percent and telecommunications at 14.2 percent.
