Egypt Economic Activity Contracts as PMI Slumps to 31-Month Low

  • Emirates NBD Sees Possible Economic Recovery in Second Half
  • PMIs of Saudi Arabia, U.A.E. little changed in March

Economic activity in Egypt’s non-oil private industries fell to the lowest level in more than two years in March amid concerns over the exchange-rate after the biggest one-time currency devaluation since 2003.

The Emirates NBD Purchasing Managers’ Index for the whole economy fell to 44.5 from 48.1 in February, the lowest since August 2013. Readings above 50 signal expansion while those below indicate contraction. The index rose to 54.5 in both Saudi Arabia and the United Arab Emirates, up from 54.4 and 53.1 respectively.

The Egyptian central bank devalued the pound by more than 10 percent in March and said it would adopt a more flexible exchange rate to attract investments and ease a dollar crunch hampering economic growth. The currency strengthened briefly in the black market before falling to a record of about 10 pounds per dollar this week, local media reported.

“The deterioration in business conditions is not entirely surprising as the survey took place at a time of elevated uncertainty that coincided with the devaluation of the Egyptian pound," Jean-Paul Pigat, senior economist at Emirates NBD, said.

The more "competitive exchange rate has now reduced a key source of risk, and could therefore set the stage for a broader economic recovery in the second half of 2016,” he said.

Tourism Struggle

The foreign-currency squeeze has been compounded by the drop in aid from the country’s oil rich Arab allies and the fall in tourism revenue following the crash of a Russian plane full of tourists in October. The PMI gauge has stayed below 50 for the past six months, and signaled contraction in nine out of 12 months in 2015.

The Central Bank of Egypt, led by Governor Tarek Amer, also eased capital restrictions on foreign-currency deposits this year, allowing businesses to use dollars acquired from the black market.

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