Egypt's tax crisis and US sluggish growth

By Euronews

Published on 05/05/2015 - 09:01

The US recovery has lost momentum, the Federal Reserve leaves rate hike on hold, while a new tax law in Egypt has riled businessmen and investors.

In this edition we read into the United States economic figures for the first quarter.

In Business snapshot, we discuss the new tax on the Egyptian Stock Exchange gains.

First in the US, disappointment with the growth rate of the world’s largest economy surfaced while expectations shrunk, affecting tangible recovery in the short term. At the same time, the Federal Reserve Bank retained the monotony of its reluctant language regarding interest rate hikes.

Now the attention is focused on what will be issued for the upcoming jobs report.

US Economy Sputters

The US Commerce department posted a report showing the weakest GDP performance of the year at 0.2 percent.

The sharp slowdown from the fourth quarter, well below the 1 percent rate, was less than expected.
Many factors caused this drop in growth during the first quarter that led to a decline in business investments by 22%.

The strength of the dollar negatively affected trade, resulting in exports falling by 7.02%.

After a few hours of compiling commerce department growth data, the Federal Reserve announced its decision to leave interest rates on hold. The Fed did not mention any June or September interest rate hikes.

Winter weather was in part to blame for the US’s sluggish performance in the first quarter of 2015.

However, projections indicate that growth could be improved during the second quarter of this year but most likely would not be strong enough.

Meanwhile the Egyptian Association for Financing and Investment, individual investors, and traders, filed the lawsuit in an administrative court demanding changes to some articles of the law.

Mohammed Omran, chairman of the stock exchange, noted that the market was adversely affected during the last period, in part due to this tax, and also due to the lack of clarity of some Implementing Regulations for the Law of the tax items.

He stressed that the first quarter of this year is the worst for the Egyptian Stock Exchange since the global financial crisis in 2008.

Graphic

At the end of April, EGX 30 index dropped to 8,000 points, losing first quarter gains.

Economic analysts say the stock market losses are not only due to the imposition of the tax, but also to the mechanics of collection and how to deal with foreign investors. It is happening at a time when the country is seeking to promote their investment sector.

Daleen Hassan euronews: “Growth was contrary to expectations and projections for the second quarter have been reduced, which is the opposite of what happened last year, what’s your take on this?”

Nour aldeen Al Hammoury:
“The US inventories has record increases, while the sales decreased significantly during the first quarter of this year as the US Dollar kept on rising. This has given global banks more proof that the US economy may retreat further in the coming months, and that the current scenario is not the same as what happened last year, when the economy recovered in Q2 after shrinking in Q1. Therefore, it’s very important to follow each economic release from now on.”

Daleen Hassan euronews : “Nothing new in the Fed meeting, but we are waiting for new job reports at the end of the week. How could it affect the Federal Reserve’s decision to raise interest rates?”

Nour aldeen Al Hammoury:
“The US jobs report is key for the Federal Reserve. In its latest statement, the Fed said that a rate hike would be appropriate if the labour market improves further. Therefore, if the economy added more than 200 thousand new jobs in April, this would reinforce speculation for a rate hike in June, while a negative number would diminish the estimates for any rate hike in June meeting.”

Daleen Hassan euronews: “What is the dollar trend after recent data?”

Nour aldeen Al Hammoury:
“So far, the US Dollar remains under pressure following a series of disappointing economic releases, if this negative data continues, the US Dollar may remain under pressure in the coming months. However, if the jobs report showed a positive outcome, the decline may ease slightly and the Dollar may recover following the figures.”

New law jars commerce in Egypt

Anger emerges among the ranks of investors and Egyptian businessmen after a 10% tax on stock dividends and capital gains was imposed. The Finance Ministry faced major challenges after severe criticism of the law which turned to a crisis in the financial sector.

Daleen Hassan, euronews: “The Egyptian Stock Exchange suffered significant losses last week following the debate over the tax could this affect investors confidence?”

Nour aldeen Alhammoury:
“Despite the recent decline in EGX30, we don’t think that this is a change in the general trend. We should not forget that the economic summit in Egypt showed clearly how the world trusts Egypt, at least from an economic point of view. Therefore, the current decline could be short-lived. However, we believe that the current decline is a healthy correction before the upside trend resumes.”

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