Abstract
We have slashed our 2009 and 2010 growth forecasts in the light of the ongoing
global economic
slowdown, as well as a deteriorating security situation in
the Gulf of Aden, which is threatening Suez
Canal traffic. Because the
Egyptian year 2009 refers to the 12 months to July 2009, the damage this
year
will be mitigated: in the first quarter, real GDP expanded by 5.2% -
a sharp slowdown from the overall
2008 rate of 7.2% admittedly, but still
a robust number. Going forward, this will slow to a full-year rate of
3.7%, and then fall further to 3.0% in 2010. Thereafter, we are expecting
growth of 4-5% for the
remainder of the forecast period.
We have
revised down our short-term political risk rating for Egypt from 66.0 to 63.5,
on the back of the
Israeli attacks on the Gaza Strip. Apart from the
physical risk of the violence spilling over the border, the
conflict has
made President Hosni Mubarak more unpopular than ever, with internet calls for
his
assassination, and protesters around the Islamic world blaming him, as
well as Israel and the US, for the
suffering in the Strip. The government
is managing to keep a lid on protests at the moment, and our rating
is
still relatively high, indicating that our core view is for the maintenance of
the status quo. However, the
opposition Muslim Brotherhood (MB) will
capitalise on this issue, particularly amid the turbulent
economic
conditions: 200,000 jobs were axed in 2008, and more cuts could be on the way.
Any increase
in the size and intensity of the protests would be dangerous
for the regime.
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