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Egypt’s economy braces for new hit from Sudan conflict

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The outbreak of clashes between the Sudanese army and the Rapid Support Forces paramilitary group came as bad news for Egypt’s economy, already struggling under severe pressure over the past year.

Egypt fears that a prolonged conflict across the border in Sudan, a major market for its exports, will complicate its economic hardships.

Egypt’s trade exchange with Sudan hit $1.4 billion in 2022, up from $1.2 billion a year earlier, including $929.2 million in Egyptian exports and $504.4 million in imports, according to the state-run Central Agency for Public Mobilization and Statistics.

Sudan also came as the second-largest market for Egyptian exports after Libya in the first quarter of 2023 with $226 million, as shown by figures released last month by Egypt’s Ministry of Industry.

Sherif el-Gabali, head of the Egyptian-Sudanese Business Council, told Al-Monitor over the phone that it is still early to assess the impact of the conflict on the Egypt-Sudan trade exchange. He expects that many Egyptian companies will halt their exports to Sudan for fear of failing to collect their money, in addition to the high security risks resulting from the ongoing fighting there.

“The conflict in Sudan will surely lead to a decline in the volume of Egyptian exports to the Sudanese market,” he said. “Most Sudanese importers used to come with cash in hand to pay for Egyptian exports and transport them to the Sudanese market through the border. But the outbreak of violence in Sudan will make this very difficult to happen.”

“[The current conflict in Sudan] will also disrupt joint economic projects on which Egypt pinned hopes to boost its economic cooperation with Khartoum,” he added.

Egypt, which has emerged as a regional energy power in recent years, has an electric interconnection line with Sudan with a capacity of 80 megawatts (MW), and the two countries were planning to increase its capacity to 300 MW. Both Cairo and Khartoum were also planning to build a 570-kilometer (354-mile) railway to facilitate the movement of goods between the two countries.

Joint investments are also expected to be affected by the ongoing conflict in Sudan. There are nearly 229 Egyptian projects being implemented in Sudan, with up to $10.8 billion in investments, according to Egypt’s State Information Service (SIS). Nearly 315 Sudanese companies also operate in the Egyptian market, with some $97 million in investments, according to SIS.

Egypt has developed strong relations with the Sudanese army following the overthrow of long-serving President Omar al-Bashir in 2019. The two countries joined hands in pressing Ethiopia to reach a binding agreement on the filling and operation of the Grand Ethiopian Renaissance Dam, which Cairo views as an existential threat to its water share from the Nile River.

However, Egypt has largely avoided taking sides during the Sudanese conflict, only appealing to both military rivals to reach a permanent cease-fire to resolve their dispute.

Egypt fears that a prolonged conflict in Sudan will trigger an outflow of refugees from Sudan into the country, which will put further strain on its already fragile economy.

According to the UNHCR, the United Nations refugee agency, at least 56,000 Sudanese refugees have crossed into Egypt since the outbreak of violence last month.

Egypt already hosts around 9 million refugees, including nearly 4 million Sudanese, the International Organization for Migration estimates.

In an interview with Japanese newspaper Asahi Shimbun last week, Egyptian President Abdel Fattah al-Sisi warned that the flow of Sudanese refugees will create economic troubles for Egypt.

“Amid the economic difficulties stemming from the Russian invasion of Ukraine, many Sudanese have fled. So Egypt is also facing problems,” Sisi said. “We are already experiencing high inflation and the prices of daily necessities are surging.”

“If we were to accept even more Sudanese, Egypt will definitely feel the effects,” the Egyptian leader added.

Egypt is already facing multiple economic difficulties, including a shortage in foreign currency and surging inflation. The local currency has lost around 100% of its value since March 2022, trading at nearly 31 Egyptian pounds to the US dollar, causing inflation to soar. Egypt’s annual core inflation peaked in February at 40.3%, before inching down to 39.5% in March. The annual headline inflation rate also surged to 33.9% in March this year, up from 12.1% in March 2022.

On May 5, credit ratings agency Fitch downgraded Egypt’s rating by one notch from B+ to B and attached a negative outlook due to the country’s economic hardships. “The external financing risk has increased given high external financing requirements, constrained external financing conditions and the sensitivity of Egypt’s broader financing plan to investor sentiment,” the agency said.

Last week, the global rating agency Moody’s warned that a prolonged conflict in Sudan could pose a credit-negative risk to neighboring countries, including Egypt.

Moody’s said that a probable spillover of the Sudanese conflict to neighboring countries would trigger broader asset-quality concerns for multilateral development banks with a higher concentration of loans in Egypt, Chad, South Sudan and Ethiopia.

Medhat Nafie, economic expert and adviser to the Egyptian supply minister, believes that the Sudanese conflict would disrupt the flow of investments into Egypt.

“The outbreak of any regional conflict would affect the ability of the whole region to attract investments, not to mention Egypt as a gateway to investment in sub-Saharan Africa,” Nafie told Al-Monitor.

He said the influx of refugees from Sudan into Egypt “will add further burdens on Egypt’s state budget and the labor market in the country.”

 

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Here is Trump economy: Slower growth, higher prices and a bigger national debt

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If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.

 

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China Stainless Steel Mogul Fights to Avoid a Second Collapse

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Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.

 

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Why Trump’s re-election could hit Europe’s economy by at least €150 billion

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A Trump victory could trigger a 1% GDP hit to the eurozone economy, with Germany, Italy, and Finland most affected. Renewed NATO demands and potential cessation of US aid to Ukraine could further strain Europe.

The potential re-election of Donald Trump as US President poses a significant threat to the eurozone economy, with economists warning of a possible €150 billion hit, equivalent to about 1% of the region’s gross domestic product. This impact stems from anticipated negative trade repercussions and increased defence expenditures.

The recent attack in Butler, Pennsylvania, where former President Trump sustained an ear injury, has boosted his re-election odds. Prediction markets now place Trump’s chances of winning at 71%, a significant rise from earlier figures, while his opponent, Joe Biden, has experienced a sharp decline, with his chances dropping to 18% from a peak of 45% just two months ago.

Rising trade uncertainty and economic impact from tariffs

Economists James Moberly and Sven Jari Stehn from Goldman Sachs have raised alarms over the looming uncertainty in global trade policies, drawing parallels to the volatility experienced in 2018 and 2019. They argue that Trump’s aggressive trade stance could reignite these uncertainties.

“Trump has pledged to impose an across-the-board 10% tariff on all US imports including from Europe,” Goldman Sachs outlined in a recent note.

The economists predict that the surge in trade policy uncertainty, which previously reduced Euro area industrial production by 2% in 2018-19, could now result in a 1% decline in Euro area gross domestic product.

Germany to bear the brunt, followed by Italy

Germany, Europe’s industrial powerhouse, is expected to bear the brunt of this impact.

“We estimate that the negative effects of trade policy uncertainty are larger in Germany than elsewhere in the Euro area, reflecting its greater openness and reliance on industrial activity,” Goldman Sachs explained.

The report highlighted that Germany’s industrial sector is more vulnerable to trade disruptions compared to other major Eurozone economies such as France.

After Germany, Italy and Finland are projected to be the second and third most affected countries respectively, due to the relatively higher weight of manufacturing activity in their economies.

According to a Eurostat study published in February 2024, Germany (€157.7 billion), Italy (€67.3 billion), and Ireland (€51.6 billion) were the three largest European Union exporters to the United States in 2023.

Germany also maintained the largest trade surplus (€85.8 billion), followed by Italy (€42.1 billion).

Defence, security pressures and financial condition shifts

A Trump victory would also be likely to bring renewed defence and security pressures to Europe. Trump has consistently pushed for NATO members to meet their 2% GDP defence spending commitments. Currently, EU members spend about 1.75% of GDP on defence, necessitating an increase of 0.25% to meet the target.

Moreover, Trump has indicated that he might cease US military aid to Ukraine, compelling European nations to step in. The US currently allocates approximately €40bn annually (or 0.25% of EU GDP) for Ukrainian support. Consequently, meeting NATO’s 2% GDP defence spending requirement and offsetting the potential reduction in US military aid could cost the EU an additional 0.5% of GDP per year.

Additional economic shocks from Trump’s potential re-election include heightened US foreign demand due to tax cuts and the risk of tighter financial conditions driven by a stronger dollar.

However, Goldman Sachs believes that the benefits from a looser US fiscal policy would be marginal for the European economy, with by a mere 0.1% boost in economic activity.

“A Trump victory in the November election would likely come with significant financial market shifts,” Goldman Sachs wrote.

Reflecting on the aftermath of the 2016 election, long-term yields surged, equity prices soared, and the dollar appreciated significantly. Despite these movements, the Euro area Financial Conditions Index (FCI) only experienced a slight tightening, as a weaker euro counterbalanced higher interest rates and wider sovereign spreads.

In conclusion, Trump’s potential re-election could have far-reaching economic implications for Europe, exacerbating trade uncertainties and imposing new financial and defence burdens on the continent.

 

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