The recovery of tourism and manufacturing kept on boosting economic activity in Egypt during the Q2 of 2015. According to Egypt’s Economic Monitor published by the World Bank this spring, real Gross Domestic Product (GDP) growth accelerated to 5.6% in H1 2015 as compared to the marginal 1.2% recorded in the same period of 2014. The report also stated that unemployment rate stood at 13% in H1 2015. Separately, international economic developments were favorable for containing inflation levels during Q2 of 2015 of which the weakening of the euro and the dwindling oil prices. Thus, the annual core inflation rate averaged 7.35% by May 2015 as compared to an average of 9.85% by May 2014.
Terrorist attacks in Luxor and Giza during the Q2 of 2015 jolted the recovering tourism activity and slowed down its progress. In fact, tourist arrivals managed over the first four months of 2015 to edge up by 7.3% y-o-y to 3.08M while the number of nights spent by tourists barely changed over the same period from 29.46M by April 2014 to 29.54M by April this year. Accordingly, the average number of nights spent by tourists slipped 6.8% y-o-y to 9.6 nights per tourist by April 2015. As for tourism receipts, the latest data revealed that travel revenues surged by 58.6% y-o-y to settle at $5.47B during the first three quarters of the financial year (FY) 2014/15.
Hospitality industry revealed gigantic upturns in the first five months of 2015 which could be mainly attributed to the 32nd round of the Pharaohs International Cross Country Rally that attracts participants from all over the world. In details, occupancy rate at 4- and 5-star Egyptian hotels surged by a yearly 18% to 50% by May 2015. As for the average room rate, it edged up from $78 by May 2014 to $103 this year with rooms yield more than doubling from $25 to $52 in the first five months of 2015.
Egypt’s external standing was impacted by the international dynamics related to the declining oil prices. The Balance of Payments went from $2.2B in the first three quarters of FY 2013/14 to $1.05B in the same period of the FY 2014/15. This majorly resulted from the broadening deficit of the current account balance from $543.1M in the period July/March of FY 2013/14 to $8.4B in July/March of FY 2014/15. In reality, trade deficit widened by a yearly 22.7% to reach $29.6B over the same period following a 13.8% slump in merchandize exports against a 6.3% y-o-y rise in imported goods in July/March of FY 2014/15. It is worth mentioning that exports of crude oil constitute around 28.4% of Egypt’s exports of merchandizes.
On a different note, Foreign Direct Investments (FDI) in Egypt hit the $5.7B between July/March of FY 2014/15 as opposed to $3.1B a year earlier. It was noticeable that $2.9B of total FDIs (more than 50% of the total) were registered between January and March of FY 2014/15 which is positively related to the economic summit that took place in Sharm el Sheikh in Mid-March.
On the public finance front, the overall fiscal deficit widened by 54.7% y-o-y to reach $29.74B in the first 3 quarters of FY 2014/15. In fact, the consolidated fiscal revenues slightly improved by a yearly 1.4% to $41.93B, while total government expenditures went up by an annual 17.5% to $70.10B between July-March 2014/15. However, waves of disappointment followed the government’s resolution to modify the application of several taxes which will negatively impact fiscal revenues in the coming period. Regarding the nation’s debt, it stood at $257.71B by the end of March 2015 compared to $218.29B in March 2014.
In the monetary sector, the banking sector’s situation remained stable over the period between March and June 2015. In fact, net international reserves at Egypt’s Central Bank (ECB) reached $20.08B as of June 2015, up from $15.29 in March 2015 and $16.69B in June 2014. On the other hand, and following the ECB’s governor statement in February that he eliminated the black market for dollars after imposing a $50,000 bank-deposit monthly limit, traders offering U.S. currency for higher rate than the official ones were back triggering the price of the Egyptian pound down as mirrored by the exchange rate that depreciated by 0.70% from the previous quarter to EGP7.63/USD by the end of June 2015.
The banking sector has shown a notable appetite for the government’s Treasury Bills (TB), as their consolidated portfolio of TBs accounted for 44.1% of their total assets as of April 2015. The sector remains strongly resilient with credit facilities substantially growing by 22.2% y-o-y to settle at $88.87B by the end of April 2015. Similarly, deposits at commercial banks rose by a yearly 21.2% to $214.05B over the same period.
The decision of postponing the application of the 10% capital gains tax for 2 years and its positive vibes on the Egyptian stock market failed to boost the year-to-date performance of the country’s benchmark index. In fact, the security turbulences that the country encountered over Q2 2015 triggered the EGX30 down by 6.2% y-t-d in the first six months of 2015 to settle at 8,371.53 points. Similarly, market capitalization lost 9.2% since year start to reach $62.98B by the end of June 2015 with the number of transactions slumping by 40.3% from Q4 2014 to 1.04M in Q2 2015. The average daily volume traded reached 128.45M shares worth $54.39M during Q2 2015, down from 195.52M shares worth $96.83M recorded in Q4 2014. In a step to improve the benchmark index, the Egyptian bourse stated a plan to reduce the required free float for new companies to be listed on EGX30, starting August 1. In details, the new equal-weighted index will includethe top 50 listed companies in terms of liquidity.