Egypt's GDP Developments for the fourth quarter and FY 2023/2024

Egypt’s GDP growth rate records 2.4% in the fourth quarter of FY 2023/24, bringing the annual growth rate to 2.4%, down from 3.8% in FY 2022/23. This occurred amid ongoing geopolitical tensions and global economic uncertainty, coupled with the government’s contractionary policies aimed at restoring macroeconomic stability—strengthening the governance of public investments being a key policy.

This was offset by positive growth in select sectors including communications and information technology, tourism (reflected in restaurants and hotels), wholesale and retail trade, and transport and storage, along with social services such as education and health, has partially offset the slowdown in economic activity in other key sectors.

Despite these challenges, an improvement in economic activity is anticipated as the government implements prudent macroeconomic measures and strengthens public investment governance, focusing on creating space for private sector participation while ensuring efficient resource allocation to key sectors. These efforts are further supported by the ongoing implementation of structural reforms, underpinned by 3 main pillars: building macroeconomic resilience and stability; enhancing competitiveness of the economy and improving the business environment; and supporting the green transition.

This positive outlook is reinforced by high-frequency data which signal tentative signs of improvement, as the Purchasing Managers' Index (PMI) rose to 50.4 points in August 2024, marking an improved outturn for several months, and surpassing the neutral threshold for the first time since November 2020, primarily driven by expansions in manufacturing activities.

Key Highlights:

Regional geopolitical tensions and instability took their toll on the Suez Canal's activity, leading to a 30% drop during 2023/24 compared to the previous year, with a sharp 68% decline recorded in the last quarter alone.

The extraction sector saw a 4.7% decline, primarily driven by reduced oil and gas production, which can be attributed to a decline in foreign investments in new well discoveries, as well as a slowdown in the development and enhancement of existing wells. Nevertheless, this trend has been reversed following the gradual payment to foreign oil and gas companies over the past few months. Moreover, these developments are prompting greater investments in energy efficiency and renewable energy projects, accelerating the green transition and providing opportunities for private sector investments.

Positive growth in select sectors including communications and information technology, tourism (reflected in restaurants and hotels), wholesale and retail trade, and transport and storage, along with social services such as education and health, has partially offset the slowdown in economic activity in other key sectors

The Ministry of Planning, Economic Development, and International Cooperation released the GDP growth rate for FY 2023/24 as part of its quarterly updates on the Arab Republic of Egypt’s economic performance. The real GDP growth rate has slowed to 2.4% in Q4 2023/24, bringing annual rate to 2.4%, down from 3.8% in the previous year.

Amid ongoing geopolitical tensions and global economic uncertainty, key sectors of the Egyptian economy have been impacted, leading to a decline in economic activity. This has been particularly evident in the Suez Canal activity, which experienced a sharp decline of 68% during Q4 of the fiscal year. This downturn was driven by risks associated with threats to international shipping routes in the Red Sea, as shipping companies opted to divert their routes away from the Canal, resulting in a 30% decline in annual activity.

The non-petroleum manufacturing sector, which contributes around 11.4% to GDP, contracted by 5.2% over the year, driven by shortages in raw materials. However, this was addressed through economic reform policies implemented in March 2024, leading the sector to record positive growth of 4.7% in the fourth quarter of the year, marking the first increase since Q1 2022/23. This improvement was due to the growth of several industries, such as ready-made garments (54.2%), textiles (23.8%), and computers and electronic products (14.9%).

Furthermore, the extraction sector, contributing 6.7% to GDP, witnessed a 4.7% decline, with oil and gas productions decreasing by 1.8% and 13.1%, respectively, due to reduced foreign investments in new discoveries, as well as a slowdown in the development of existing wells. Petroleum refining activities also saw a decrease of 6.1%, due to the decline in quantity produced from those wells, which in turn affected the inputs for producing petroleum products, impacting net exports. Nevertheless, this trend has been reversed following the gradual payment to foreign oil and gas companies over the past few months. Moreover, these developments are prompting greater investments in energy efficiency and renewable energy projects, accelerating the green transition and providing opportunities for private sector investments.

Despite these challenges, a variety of sectors have demonstrated resilience and contributed to positive growth, with the ICT sector growing by (14.4%), tourism (reflected in restaurants and hotels) by (9.9%), wholesale and retail trade by (6.1%), construction by (5.7%), social services (including health and education) by 5.6%, transportation and storage by 5.4%, and agriculture by (3.8%). This is in line with the government’s vision of diversifying the economy by enhancing the contributions of the manufacturing, agriculture and ICT sectors to GDP, in addition to sectors related to human and social development. 

Moreover, high-frequency data signal tentative signs of improvement in economic activity, as the Purchasing Managers' Index (PMI) rose to 50.4 points in August 2024, marking five several months of improvement and surpassing the neutral threshold for the first time since November 2020, primarily driven by expansions in manufacturing activities. Additionally, the Business Barometer Index, issued by the Egyptian Center for Economic Studies, experienced a slight improvement, which reflects a positive trend in overall business performance. These developments suggest a gradual stabilization of the economy as key sectors show signs of renewed activity.

These indicators align with forecasts from various international institutions, suggesting that GDP will grow by 4% in the current fiscal year 2024/2025. This positive outlook is expected due to ongoing efforts to foster a private sector-led growth, while adopting measures to refine monetary and fiscal policies to better support economic recovery. In addition, the ongoing implementation of structural reforms, which are underpinned by 3 key pillars - building macroeconomic resilience and stability, enhancing competitiveness of the economy and improving the business environment, and supporting the green transition – further reinforces this trajectory. Strengthened public governance will also play a crucial role in creating room for private investments, whereas continued fiscal consolidation is expected to enable further investments in human capital and industrial development, enhancing productivity — a key factor for sustainable economic growth and development.