Sustained and accelerating growth provides evidence of an expansionary fiscal consolidation in a context of a competitive exchange rate and strong supply response in the energy sector to removal of distortions.
Real GDP grew at 5.3 percent in fiscal year (FY) 2018 (July to June), compared to 4.2 percent in the previous year. The pickup is driven by public and private investments and private consumption.
Exports of goods and services have contributed positively to economic activity, as oil and non-oil merchandise exports, the Suez Canal and tourism continue to rebound. Fast growing sectors include the gas, telecom and construction sectors.
Economic activity is still primarily driven by State-led projects, as evidenced by large public investments. Nevertheless, the purchasing manager’s index (PMI), a monthly survey of private business conditions, indicates that non-oil private sector activity has recently started to expand as of July and August 2018, after several months of contraction.
Growth is expected to reach 5.6 percent in FY19 supported by private consumption, a further recovery in the tourism sector and the operationalization of recently discovered gas fields. Public investment is also expected to grow, and a recovery of private investment is envisaged, if the business environment reforms are effectively implemented.