Amidst geopolitical instability in the region and its repercussions on vital revenue streams like the Suez Canal and tourism, Egypt's growth forecast for the current quarter stands at a modest 2-2.2%, explains Carla Slim, Standard Chartered Bank’s (StanChart) senior economist for the MENAP region.

Speaking at the bank’s first large-scale media roundtable in Egypt, Slim shared StanChart’s research on Egypt and the region’s economic landscape.

StanChart forecasted that Egypt's economy will gradually regain momentum, anticipating a rebound within the next 2 years.

“We think that it will take 2 years to get back to the levels of about 4.5%... instead of the government spending that we were used to, [this will be driven by] private investments, specifically for renewable projects,” Slim explained.

Possibility of another similar Ras El Hikma deal

When discussing the possibility of another substantial foreign direct investment (FDI) from the GCC, she emphasized the complexity of each country's liquidity landscape.

“It is always important to remember, from [the strategic investors’] perspective, the priorities for their own countries are also competing… Saudi Arabia is the largest issuer of debt instruments among emerging markets this year to date… and you have other countries such as Qatar which is using its surplus pay down debt to improve their FX reserves with the ultimate objective of improving their credit rating,” explained Slim.

These indicate that the GCC doesn’t always have the capacity to “deliver such a large-scale investment or have excess liquidity that is readily available for such investments,” she added.

Slim highlighted that a majority of the GCC’s $4 trillion assets, whether in sovereign wealth funds or in central banks, are already invested. For another deal such as Ras El Hikma, the region would need to see fresh surplus rerouted from their economies to Egypt to see another possible large ticket FDI.

Inflation

Turning to inflation, Slim notes that StanChart anticipates a gradual decline, with May's inflation rate expected to register at 29.8%, marking a 3rd consecutive downturn.

This downward trajectory is expected to prompt the Central Bank of Egypt (CBE) to initiate monetary policy adjustments, potentially lowering interest rates by 3-5% by year-end.

In the past 3 years, the CBE has raised inflation rates by around 70% on average, explained Slim.

Looking ahead, the bank forecasts inflation to further retreat to around 25% by year-end, with a subsequent dip to approximately 20% in 2025.

However, Slim cautioned against risks to the disinflation, with rising food and energy prices, coupled with increased market liquidity from major agreements like Ras El Hikma, posing potential hurdles to achieving projected inflation targets.

In order for inflation to fall under 30-20%, she stressed that the CBE will need to absorb the excess liquidity in the market.

Despite interest rate cuts in the short term, she noted that current rates would discourage substantial private sector borrowing as they remain “under pressure,” prolonging the sector's subdued performance.