Followers of Economy Plus expect the exchange rates of the US dollar against the Egyptian pound to decrease during 2020, to trade between EGP 15.5 and EGP 16, with the Central Bank of Egypt (CBE) moving to reduce interest rates by up to 2% throughout the new year, while the prices of petroleum products stabilise at the same rates in the last quarter of 2019.
The first annual survey of Economy Plus on the Egyptian economy, in which the followers of Economy Plus on social media platforms and readers of its daily newsletter, showed that the majority of subscribers expects an appreciation of the national currency and lower prices of consumer goods. More than 240 respondents from business executive, analysts, and economy savvy people participated in the survey.
With a slight difference, the followers of Economy Plus favoured gold as the best investment pot in which citizens could invest their savings in 2020, while expectations varied widely about the future of real estate sales, and they were relatively nominated for activity revival, and a boom in real estate sales.
The majority of subscribers considered government regulations and red tape as the most important challenges facing businesses in Egypt, and they expected a greater share of the private sector in the Egyptian economy during the new year. They ruled out slowing production and new orders and the continued decline in the purchasing managers’ index for non-oil activities.
Economy Plus’s followers put geopolitical tensions in the Middle East at the forefront of international issues that will have the greatest impact on Egypt’s economy in 2020.
Fuel prices stabilized and consumer goods’ prices to decline in 2020
Economy Plus followers expected the stability of the prices of petroleum products in Egypt during the year 2020, supported by the expected decline in the exchange rates of the dollar against the pound. Some 59% of the respondents said that prices of petroleum products will tend to stabilise in the new year, while 27% of respondents believed that prices of petroleum products will decrease, compared to only 14% who expected prices to rise in 2020.
The expectations of the followers of Economy Plus come in conjunction with the decision of the automatic pricing committee for petroleum products, concerned with reviewing and setting the selling prices of some petroleum products on a quarterly basis. At its last meeting in December, they decided to maintain the selling price of gasoline products in the local market at EGP 6.5 per litre of gasoline 80, and at EGP 7.75 per litre for gasoline 92, and at EGP 8.75 per litre for gasoline 95.
The committee also decided to keep the price of selling diesel at EGP 6.75 per litre and fix the selling price of fuel oil at EGP 4,250 pounds per tonne, in light of the fixed cost of selling and making those petroleum products available in the local market, due to the increased price of Brent per barrel in the global market from October to December 2019 compared to the previous quarter by 1.7%, which was offset by an increase in the value of the pound against the dollar, according to what was announced by the CBE during the same period by about 2%.
However, it appears that the escalating geopolitical tensions that the Middle East is going through will overshadow oil prices, which rose by 3% following the killing of the Quds Force commander Qasem Soleimani in a US raid in Iraq. This attack could fuel the conflict in the region at a time when the Eastern Mediterranean region is already witnessing skirmishes and disputes that could ignite the situation in Libya, a major oil-exporting country.
On the other hand, 45% of respondents said that consumer prices will continue to decline in the new year, while 35% expected the prices of consumer goods to remain stable, and only a suggested 20% price increase in the new year. The expectations of the followers of Economy Plus for the decrease in commodity prices come in light of the efforts of the government and the CBE to keep commodity prices down and to keep the inflation rate at a single digit, and directives to raise the percentage of consumer loan installments to 50% of customers’ monthly income.
It is noteworthy that the core inflation rate, issued by the CBE decreased to 2.1% on an annual basis last November from 2.7% in October 2019, which excludes highly volatile goods such as food, while the Central Agency for Public Mobilization and Statistics announced that the annual urban inflation of consumer prices rose to 3.6% in November instead of 3.1% in October, the first rise after 6 months of declines.
Pound gains will increase and interest rates will decline in 2020
Followers of Economic Plus expected that the strength of the pound will increase during 2019, to increase its gains against the US dollar, which reached 10.5% during 2019. About 47% of the respondents said that the pound exchange rate against the dollar will fluctuate during 2020 between EGP 15.51 and EGP 16, while the expectations of 30% of the participants went to increase the pound strength during the year that started several days ago, to push the dollar exchange rate to less than EGP 15.5 pounds. Thus, the percentage of those who expected the pound exchange rate to drop below EGP 16 reached 77% of participants, while 47% said the exchange rate will be EGP 15.5-16, and 30% said it will be below EGP 15. Meanwhile, 16% of respondents expected the exchange rate of the pound against the dollar to range between EGP 16.01 and EGP 16.5 during 2020 with only 4% expecting the exchange rate of the dollar to rise against the pound between EGP 16.5 and EGP 17. A few suggested a dollar’s appreciation to more than EGP 17.
The strong expectations for a rise in the exchange rate of the pound against foreign currencies in 2020, based on the strong performance of the local currency last year, came amid a noticeable increase in Egypt’s foreign exchange resources, especially tourism and remittances from workers abroad, higher exports and lower imports, and recently increased foreign direct investments (FDIs) flows.
Moreover, the expectations of the followers of Economy Plus regarding the interest rates on the pound favoured further cuts. About 81% of respondents expected the CBE to reduce interest rates during 2020, while 18% suggested stabilising interest rates, and only 1% of respondents expected interest rates to inch up.
Expectations for cutting interest rates on the pound in the new year come in light of the global downward trend in interest rates, and the trend taken by the CBE in 2019, during which interest rates were cut by 450 basis points (4.5%).
As for the expected cuts, 34.1% of the followers expected an interest rate reduction of only 1%, while 39.7% of the respondents said CBE would cut rates by 2%, and 20.7% of respondents said that the CBE will reduce the interest rate by 3%. About 5.6% said that the CBE will cut rates by 4%.
The first meeting of the Monetary Policy Committee (MPC) of the CBE will take place on January 16th, which was postponed instead of December 26, when President Abdel Fattah Al-Sisi issued a decision recently to form the new board of the CBE.
CBE initiatives will revive real estate and industry in 2020
Followers of Economy Plus who participated in its first annual survey on the economy of Egypt expected markets to witness great activity in the new year, supported by the initiatives put forward by the CBE to stimulate demand for real estate, consumer borrowing, and factory activity. About 47% of the respondents said that CBE’s initiatives will achieve an average impact on the markets, while 27% said that the impact of the initiatives, which exceed EGP 200bn, will be good on the markets. About 12% expected a strong positive impact of CBE’s initiatives on the markets and the movement of money in them.
Only 12% felt that the initiatives of the government and the CBE will have a slight effect, while 2% of the followers considered that they are useless.
It is noteworthy that the CBE launched several initiatives to revitalise the Egyptian economy, following the completion of most of the steps of the economic reform programme in cooperation with the International Monetary Fund (IMF), and the remarkable improvement in most economic indicators.
The CBE proposed an initiative worth EGP 100bn granted by banks to factories at a 10% reducing interest rate, as well as an initiative for troubled factories to pay 50% of the debt in exchange for dropping the accumulated interest of EGP 31bn. The CBE also launched an initiative to revitalise the real estate sector, with a value of EGP 50bn from banks and real estate financing companies for middle-income citizens with a 10% diminishing interest rate and repayment periods of up to 20 years.
The CBE also issued instructions to banks to raise the proportion of consumer loan premiums from 35% of income to 50% in an effort to increase the credit limits of citizens and in order to stimulate demand for consumer loans, which include personal loans and car installments.
Meanwhile, 52% of respondents to the Economy Plus survey ruled out a boom in real estate sales in the new year, while 48% of them believed real estate sales to increase in 2020, in light of the general downward trend in interest rates, which is reflected positively on the movement of real estate sales in the country, in addition to the initiative put forth by the CBE for middle-income citizens to purchase real estate at prices not exceeding EGP 2.25m under 150 square-meters with real estate financing at 10% decreasing interest rates.
Greater opportunities for the private sector in 2020, red tape is the most important challenge
Regulations and government red tape were at the forefront of the challenges facing the business sector in Egypt during 2020, according to participants in the first annual survey of Economy Plus on the Egyptian economy, as 72% of respondents put it at the forefront of their concerns.
The results of the survey, which allowed participants to select multiple choices, revealed that the lack of skilled labour, which the country lost a large percentage of it since 2011, is the second most important challenge facing business owners followed by the interest rates that received 31% of the survey’s respondents, although interest rates decreased by 4.5% last year, the respondents demanded more until the cost of investment decreased.
The inflation rate and the rise in prices came as the third most important challenge, then the pound exchange rate against the dollar.
The exchange rate of the dollar against the pound is currently about EGP 16.15 for the dollar, after declining by 10.5% in 2019, due to the significant impact of the decline in the exchange rates of the dollar and other foreign currencies against the pound in reducing the prices of intermediate goods and imported production requirements, while fuel prices tailed the challenges that face business owners in the new year, by 19%.
Participants in the Economy Plus survey expressed their optimism with a greater participation of the private sector in the economy during the new year, as 68% of them voted in favour of increased contribution of private companies in the economy compared to only 32% who excluded that and saw that the government, and its subsidiary and state agencies, to continue leading the economic scene in Egypt.
This comes amid repeated calls by President Abdel Fattah Al-Sisi to the Egyptian private sector to participate in major projects implemented by the country, and to increase the local component in manufacturing in order to reduce the use of imported goods and decrease the cost of importation.
The CBE approved an initiative worth EGP 100bn of funds granted by banks to Egyptian factories at a 10% falling interest rates to be directed to factories whose production is destined for export and thus increase the country’s foreign exchange resources, and factories that offer alternative products for import.
In addition, 57% of respondents to the Economic Plus survey ruled out the continued slowdown in production, and new orders to the Egyptian non-oil private sector in 2020, and they expected the PMI for non-oil activities to rise above the 50-point barrier.
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