Egypt shrugs off slowdown but faces inflation risk

By Will Rasmussen

CAIRO (Reuters) - At Cairo's largest shopping mall, Egyptians watch films from La-Z-Boy reclining chairs, shop for Escada handbags and sip coffees at Starbucks.

Betting this is just the beginning of a spending boom, Gulf Arab and European companies are pouring money into the most populous Arab country, despite a global credit crisis and a slowdown in Europe, its main export market.

However, business analysts warn rising inflation could eventually curb consumer spending, stall reforms that have excited investors and anger the poor majority who have not yet seen the benefits of buoyant growth.

Gulf Arab petrodollars, cuts in taxes and duties and a surging stock market have unleashed consumer optimism among the wealthier sectors of Egyptian society.

"When you've been in a bad state and things get a bit better, it feels great," said Sherif Idris, 41, while shopping at a glass-panelled mall overlooking the Nile.

The Canadian-Egyptian, who moved back to Cairo a year ago to work for a private equity firm, said lower classes had yet to feel much benefit.

"Things could be ten times better than they are now."

Spending on consumer goods is still limited to a small but growing middle class in a country where the United Nations says about one-fifth of the population of roughly 75 million lives on less than $1 per day, and most people do not have bank accounts.