Egypt's economy appears to be in good shape approaching the end of this fiscal year (FY), backed by improvements in non-oil private sector business conditions in the purchasing managers index (PMI), upward trend of foreign reserves, decline in inflation rates, and doubling the Zohr gas field's output capacity, according to FocusEconomics' Consensus Forecast Middle East and North Africa report issued on Wednesday. The report cites that in April, foreign reserves hit a record high, and Egypt successfully held its first euro-denominated public debt issuance. The country has thus continued its upward trend since November 2016, backed by the reform progress that has seen the pound freely floated and the double-digit deficit trimmed. Moreover, also in April, business conditions in the non-oil private sector improved for the first time since last November on the back of higher new business orders and stable output in the PMI. Meanwhile, a second production unit came online at the giant offshore Zohr gas field, which will double the field's output capacity, bringing Egypt a step closer to ending its dependency on LNG imports. The report forecast that growth should accelerate in 2018 and 2019. In addition to that, investments will support the economy, boosted by an improved regulatory environment following the recent measures adopted, such as new laws on investment, bankruptcy, and industrial licensing. However, the FocusEconomics report indicates that elevated debt burden and a sizeable budget deficit continue to pose downside risks. FocusEconomics analysts expect Egypt's GDP to expand 4.8% in FY 2017/2018, up 0.1% points from last month's forecast, and 5.0% in FY 2018/2019. Regarding the monetary sector, the report indicates that headline inflation continued its downward trend in March for the eighth consecutive month, decelerating to 13.3% from 14.4% in February on the back of lower prices for food and non-alcoholic beverages. The report forecast inflation to average 14.4% in calendar year (CY) 2018 and 11.6% in CY 2019. Meanwhile, annual average inflation decelerated to 25.3% in March from 26.9% in February.
