It was a balmy Sunday evening in February in Cairo and tourists thronged the alleyways chock full of souvenir and gold shops in the Khan el-Khalili bazaar in the centuries old Al Hussein Square. But the atmosphere was suddenly ruptured with a bomb blast that wounded around 21 tourists and killed one. The explosion that hurt 13 French, one German, three Saudi tourists and four Egyptians has caused alarm around the world. The Egyptian police believe that the blast was masterminded by a new isolated ultra-Islamic mini-terrorist cell made up of three to four militants. But even a small group such as this is enough to create havoc in Egypt’s economy. The blast may batter tourism, which is the lifeline of Egypt, an economy already burdened by the effects of the global financial crisis.

The International Monetary Fund forecasts that Egypt’s economic growth is likely to slow down to between 5% and 5.5% in 2008/09 due to declines in foreign direct investment and revenue from tourism and the Suez Canal. This recent bomb blast, and another attack on an American schoolteacher just days ago, has only added to Egypt’s woes.

Tourism in Egypt is a vital source of revenue contributing to 11.1% of the GDP in the 2008 financial year, but terrorism has always been a constant threat. In 2008, ten foreigners were kidnapped and in 2005 the Al Hussein square was targeted by a suicide bomber. Islamic extremist groups deliberately target tourist hotspots and security is very tight in these areas.

But now, across Egypt, hotel revenues and occupancy rates have slumped, forcing some establishments to lay off some of their staff. This is a daunting scenario for an economy where 12.6% of the national workforce is engaged in tourism. Industry experts are predicting that tourism numbers will fall by at least 15% to18% in 2009 to about 10.5 million and hotel occupancy rates will slide below 50%.

Apparently, this is one of the worst times for Egyptian tourism, as it’s threatened not just by terrorism but also by an alarming rise in the number of bird flu cases. In a country where nearly five million people depend on poultry as one of the main sources of food and income, cases of bird flu are not uncommon. The most recent case involved a two-year old boy, the 56th individual to be affected.

But Egypt has not given up hope. It is home to one of the most ancient sites in the world, with excavations constantly turning up newer antiquities. And, just days after the blast, a 3,200 year-old-tomb was discovered in the ancient necropolis of Saqqara. Will the tourists shy away from Egypt for long?