How the increase in electricity prices affect the budget, inflation and stock companies .. "Beltone" answers
The Ministry of Electricity announced the increase in electricity charges as of July 1, 2019. Electricity prices for household consumption rise by an average of 20% and electricity prices for the commercial sector are up by an average of 14%. Meanwhile, electricity prices for the industrial sectors, Steel industry, by 10%, bringing the total price increase by an average of 15%, but what is the effect of that increase on the performance of companies listed on the stock exchange, and answer investment bank Beltone.
As for the impact of rising electricity prices on the budget, Beltone said that given that domestic electricity accounts for 42% of subsidized electricity, the increase in electricity prices for the high consumption sectors is expected to provide an average of about LE 9.1 billion of the electricity subsidy bill for the fiscal year 2019 / 2020, and savings of about 16 billion pounds are expected from the electricity subsidy bill.
The government expects the electricity subsidy to fall by 50% to LE 16.5 billion compared to LE 33.5 billion in fiscal year 2018/2019. Electricity subsidies represent 15% of the goods subsidy bill. Beltone predicted that the lower subsidy bill would improve the balance In the fiscal year 2019/2020, with the fiscal deficit falling to 7.8% of GDP compared to 8.6% expected in fiscal year 2018/2019.
As for inflation, Beltone predicted an annual inflation increase of 2.5-3.5% in the third quarter of 2019 after the removal of fuel and electricity subsidies for the fourth time, the third increase in water prices and inflation expected to average 13.7% in the second half of 2019, unchanged For the first half of 2019 at an average of 13.3%. Therefore inflation is expected to stabilize within the target range of the Central Bank.
On the impact of the increase in electricity on interest rates, Beltone kept his expectations of keeping interest rates unchanged at the MPC meeting on May 23, despite the opportunity to cut them by about 100 basis points, noting that the recent interest rate cuts ahead of the expected time in February – Which aims to boost investor confidence by sending a strong message of confidence in current monetary policy as well as confidence in the local currency path – would reduce the economic component of the decision-making process and open up interest rate movements before removing subsidies.
Finally, the impact of the decision on the stock exchange companies, Beltone predicted, has a very limited direct impact on the margins of the consumer and health care sectors. However, he believes that the decision will have a significant impact on several industrial companies, specifically Ezz Steel and the Arab Cement. On the other hand, The impact of the increase in electricity prices in the real estate sector until 2021.
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[t tags] Economy
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