Egypt’s Non-Oil Economic Activity Indicates Recovery Has Stalled

Business activity in Egypt’s non-oil economy weakened in July, indicating that the nascent recovery of North Africa’s largest economy may already be stalling.

The Emirates NBD Purchasing Managers Index for the whole economy fell to 49.2, the lowest since February, from 50.2 in June. Readings above 50 signal expansion, while those below indicate contraction. The index was below 50 in six of the first seven months of 2015.

The survey “came in below expectations, and hence raises the possibility that Egypt’s macroeconomic recovery may have stalled,” Jean-Paul Pigat, senior economist at Emirates NBD PJSC, said in a statement. Business activity is being undermined by the country’s “security risks” and a foreign exchange shortage, raising the potential for economic growth to accelerate if both improve, Pigat said.

Egypt’s economy expanded by 4.7 percent in the nine months to March, driven by large government projects including an $8.2 billion expansion of the Suez Canal. Weak economic performance in the comparable period last year also boosted the relative performance, making it the first time that growth exceeded 4 percent since the so-called Arab Spring uprising in 2011.

Businesses have suffered from a shortage of dollars since Egypt’s central bank imposed deposit restrictions in February to combat black market transactions. Banks are prioritizing importers of essential goods, including food, in their foreign currency dealings, leaving many companies starved of dollars.

That shortage has weighed on the country’s stock market. The benchmark EGX 30 Index has fallen about 9 percent this year, making it the ninth-worst performer on a local currency basis among indexes tracked by Bloomberg. It surged more than 30 percent in 2014.

The PMI measure is based on answers to a questionnaire from purchasing executives in about 450 private sector companies. It carries five sub-indexes measuring key indicators including output, new orders and employment.

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