Central Bank of Egypt : Monetary Policy Report III-2020

Central Bank of Egypt

Monetary Policy Report

III / 2020

Disclaimer

The cut-off date for the data included in this report is November 30th, 2020. Some of the data presented are preliminary or subject to revisions. There has been new incoming data since the cutoff date, including but not limited to the release of the inflation statistics for November 2020. Furthermore, the Monetary Policy Committee decided in its meeting held on December 24, 2020 to keep the Central Bank of Egypt's (CBE) benchmark policy rates unchanged. These and all other incoming data will be incorporated in the following Monetary Policy Report.

Monetary Policy Report III / 2020

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Table of Content

THE INITIAL CONDITIONS………………………………………………………………………………………	PAGE 3
THE OUTLOOK………………………………………………………………………………………………….…..	PAGE 15
APPENDIX: TABLES AND ABBREVIATIONS..……….……………………………………………….....	PAGE 17

Monetary Policy Report III / 2020

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Figure 1

Economic Growth of Egypt's External Environ-

ment 1/

(In %, y/y)

Advanced economies

Emerging economies

10	World
5
0
-5
-10
-15	Mar-14Jun-14Sep-14Dec-14Mar-15Jun-15Sep-15Dec-15Mar-16Jun-16Sep-16Dec-16Mar-17Jun-17Sep-17Dec-17Mar-18Jun-18Sep-18Dec-18Mar-19Jun-19Sep-19Dec-19Mar-20Jun-20Sep-20

Source: Bloomberg & Central Bank of Egypt calculations.

1/ The series is weighted using Egypt's trade volume in 2015/16.

Figure 2

Headline Inflation of Egypt's External Environ-

ment 1/

(In %, y/y)

The Initial Conditions

1. Globally, economic activity and trade continued to contract in 2020 Q3, albeit at a slower pace compared to 2020 Q2. Inflation stabilized in 2020 Q3 after a steep deceleration in the previous quarter. In October and November 2020, international oil prices stabilized after dropping in September from their peak August 2020 levels. Capital inflows into emerging markets continued to increase in between May and November 2020, given the easing global financial conditions, and despite the continued uncertainty posed by COVID-19.

Economic activity of Egypt's external environment contracted sharply in 2020 Q2, recording -12.3%, compared to a -2.3% in the previous quarter, which in turn was the first contraction in the world economy since 2009 Q3, affected mainly by the COVID-19 global outbreak as well as the associated containment measures. The contraction is expected to continue in 2020 Q3 albeit at a slower pace.

10

Advanced economies Emerging economies World

In advanced economies, the contraction of economic ac-

8

6

4

2

0

Sep-14

Mar-15

Sep-15

Mar-16

Sep-16

Mar-17

Sep-17

Mar-18

Sep-18

Mar-19

Sep-19

Mar-20

Sep-20

-2

Source: Bloomberg & Central Bank of Egypt calculations. 1/ The series is weighted using Egypt's trade volume in 2015/16.

tivity recorded -3.5% in 2020 Q3, easing from the -10.3% in 2020 Q2, but still deteriorating compared to -1.7% and +0.8% in 2020 Q1 and 2019 Q4, respectively. Both the sharp deterioration in 2020 Q2 and the subsequent relative ease in contraction in 2020 Q3 were broad based across the US, the Euro area, the United Kingdom and Ja- pan. Meanwhile, economic activity in emerging economies also contracted in 2020 Q2, recording -2.0% compared to -0.6% and +1.3% in 2020 Q1 and 2019 Q4, respectively. This was driven by continued contraction in economic activity in Russia, India and Brazil, which were more than enough to offset the recovery in China. Latest 2020 Q3 data show that China continued to recover while the contraction in Russia eased as well, further supporting the slower pace of contraction in 2020 Q3 for emerging econ- omies.

Annual headline inflation of Egypt's external environment stabilized at 1.3% in 2020 Q3, after dropping substantially in 2020 Q2 compared to 2.3% in 2020 Q1, thereby marking the lowest level since 2009 Q3. Inflation in advanced

Monetary Policy Report III / 2020

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