MARKET CHATTER: Egypt Economic Recovery

In the context of Egypt’s protests last night and renewed political turmoil, it is important not to forget the economic implications.

After all, the economy is where we see the clearest consequences of nearly two years of instability – foreign reserves have more than halved since December 2010 to $15.4 billion, the balance of payments deficit is at $518.7 million in the third quarter of 2012/13, and tourism revenues are depressingly low despite government efforts to boost earnings to 2010 levels.

The question for many politicians desperate to see some success is how quickly will Egypt’s economy recover?  To shed some light on the varied perspectives out there in the market, here are two conflicting views from analysts who keep a close eye on Egypt and its balance sheet:

Peter Garnry, equity strategist at SAXO BANK 

Garnry reckons Egypt’s economy is still a long way from recovery.

“It is impossible to say when will this be over. In Europe the crisis was expected to be over in one year, and now we are into the fourth year into the crisis… Egypt’s economy will likely take a long time [to rebound],” Zawya Dow Jones reported him as saying.

He also notes that it’s not advisable for the Egyptian government to devalue the currency directly via regulations, or indirectly via printing more money.

This “distorts the economy. It doesn’t solve the problem, as you don’t change structurally the things that are wrong in the economy,” adding “it is best to leave it up to the market to adjust the [Egyptian] pound’s value.”

Then there’s the more bullish view, from the ever optimistic Emad Mostaque.

Emad Mostaque, strategist at RELIGARE NOAH  

Egypt is open and functional today and we must look at these protests in proportion to their actual size and disruption on the economy.

All the complaining over the constitution is also overdone, we don’t even have one in the UK and the most liberal/ideal one I’ve seen is in North Korea. What matters is who gets elected and if those elections are fair.

Onto markets, we would expect more weakness into the weekend with more marches tomorrow, although foreign buying has finally started as investors look to the medium term picture with elections being pushed through and some very tactical Arab (Qatari?) buying supporting the market.

The real economy will be ok (minus some points on tourism but plus lots on foreign aid).

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