Government unlikely to achieve expected GDP growth: HC Securities

The investment bank estimated that GDP growth will not exceed 3.4% while it predicted that the budget deficit will register 11.3% of GDP

The Egyptian government is unlikely to meet its fiscal year (FY) 2015/2016 gross domestic product (GDP) growth target of 4.0%–4.25%, despite public driven investments remaining on track, the research department at HC Securities said in a report issued Saturday.
The investment bank estimated that GDP growth will not exceed 3.4%.
The Economic research company FocusEconomics estimated the FY 2015/2016 growth rate to be 3.6% while the GDP growth for FY 2016/2017 will be 4.1%,
Both companies' expected GDP growth rate is significantly lower than the 4.2% GDP growth recorded during the past fiscal year.
HC Securities added that unemployment will reach 12.3% and inflation is expected to reach 10.7%.
"In the past month, foreign currency shortages have taken a turn for the worse, with the burden being largely shared by the entire non-oil private sector," the report read. "Tourism receipts have plummeted following the Russian Metrojet crash, while private consumption, in our view, is finally giving in to a sticky double-digit unemployment figure."
"Moreover, inflation targeting has become a critical part of the government's policy, which is limiting the CBE's ability to stimulate growth, especially in light of the higher cost of sourcing foreign currency and to a lesser extent debt monetisation," the report added.
In its latest report, FocusEconomics stated that inflation rate will reach an average 10% in the 2016 calendar year, which is down 0.1% compared to the previous month's projection. The firm added that inflation will decrease to an average of 9.9% for the 2017 calendar year.
Discussing the country's savings, HC Securities said that those savings are "overstated".
"Our estimates of a current account deficit to GDP of 4.0%, and, unwilling to jeopardise growth for a second consecutive year, we believe the government is likely to adopt a more flexible FX [fiscal] policy in FY 2016/2017, as we tap international lenders," the company said. The report added that the upcoming fiscal year is expected to witness a recovery in the tourism sector, which will push real GDP growth to 4.4%.
The company said the budget deficit is predicted to reach 11.3% of GDP in FY 2015/2016, while it will decrease to 10.9% of GDP in FY 2016/2017.
"In our view, system deposit growth should be enough to cater to both government and private sector financing needs, without the need for any sizable debt monetisation, dismissing concerns of a crowding-out effect," the report added.