Stories about the Egyptian economy (EGPT, quote) leading up to the country’s first ever free and fair presidential elections were somewhat positive, with headline numbers indicating that the country grew 5.2% year-over-year. However, digging a little deeper, it becomes obvious that this data is not particularly impressive and that the structural impediments to the Egyptian economy remain in place.
Although the recently released GDP data look superficially impressive, this is largely the result of easy comps. The economy grew 5.2% year-over-year because the first quarter of 2011 saw the country essentially halt as protests overwhelmed daily life. When evaluating the numbers quarter-over-quarter, the Egyptian economy actually shrank 4%.
While Egyptians are in the process of selecting a new president, unfortunately, the economy has taken a backseat to religiosity in this campaign. As a result, many Egyptians will vote for candidates that are more aligned with their own religious views, as opposed to ones that are more keen on necessary economic reform (shades of certain parts of America anyone?)
The Egyptian economy is desperately in need of leadership. The country’s currency woes and concomitant attempts to prop it up are costing the government substantial sums of rapidly depleting foreign currency reserves, which could eventually devolve into a disorderly devaluation.
Inflationary pressures continue to adversely impact Egypt’s middle class. While many are glad to see the crony capitalism that thrived under the Mubarak administration dissipate, the transition to a freer economy has been predictably problematic, as entrenched interests have proven difficult to dislodge.
As a result of the plethora of underlying issues plaguing the Egyptian economy, it’s still far too early to try and bottom pick here. Traders with access to the Egyptian pound should remain short against the dollar.