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Capital outflows shake emerging markets during Covid-19 crisis: CBE Egypt's monetary stimulus to support economic recovery and ease coronavirus impacts
Emerging markets have experienced capital outflows between mid-January and February for the first time since August 2019 due to the coronavirus pandemic, the Central Bank of Egypt (CBE) said. The CBE said, in a monetary policy report on Monday, this was mainly due to fears of higher risks amid the turmoil that hit the global economy after the emergence of the coronavirus. It pointed out that the net foreign investments in Egypt's portfolio equity in the third quarter (3Q) of 2019 were affected by the temporary capital outflows from emerging markets, for the first time since 4Q 2018. Meanwhile, the CBE noted that net foreign direct investment (FDI) in Egypt increased on an annual basis in 3Q 2019 for the third time since 4Q 2018, after it generally stabilised in 2Q 2019. This FDI increase was supported by the rise in inflows to establish new companies or increase capital, as well as higher investments in the petroleum sector, the CBE explained. However, both investment in real estate and sales of productive assets decreased. The CBE said that, despite the coronavirus's negative impact on growth and domestic economic activity, the Egyptian government's and CBE's stimulus policies will support economic recovery. The CBE pointed out that crude Brent prices are expected to decline, which reflects the impact of weak demand and increased production globally. Crude Brent prices were included in the outlook for domestic inflation compared to the previous monetary policy report, which was issued almost three months ago. “The most prominent risks surrounding domestic inflation on the part of the global economy include turbulence in global economic activity and its impact on the outlook for the global economy, at least in the short term, after the emergence of the Coruna virus,” the CBE said. It added that while global oil prices remain subject to fluctuations, due to potential supply-side factors, which include regional risks, the risks surrounding their forecasts remain in a downward domestic trend.
