CAIRO: Business activity in Egypt shrank for the sixth straight month in March, a survey showed on Wednesday, as declines in new orders and output caused the
biggest contraction in the survey in over two and a half years. Egypt has been struggling to revive its economy since a popular uprising in 2011 and subsequent political upheaval that
have driven both investors and tourists away, depriving it of the foreign currency it needs to import raw materials.
The Emirates NBD Egypt Purchasing Managers Index (PMI) for the non-oil private sector fell to 44.5 points in March from 48.1 points in February, remaining below the 50-point mark that separates growth from contraction.
Egypt’s central bank had devalued the pound to 8.85 per dollar from 7.73 on March 14 and announced it would pursue a more flexible exchange rate. It later strengthened the pound to 8.78 per dollar. Economists say the pound is still over-valued.
“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,” said Jean-Paul Pigat, senior economist at Emirates NBD.
“Looking ahead, we believe that the move to a 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,” Pigat said. New orders tumbled to 42.3 points in March from 48.2 pounds in February. The decline was the sixth consecutive drop and the fastest in two and a half years. The output subindex also fell for the sixth month in a row, to 40.7 points in March from 47.4 points in February. Purchasing costs rose to 78.8 points in March from 61.5 points the month before.
“According to panellists, the devaluation of the Egyptian pound relative to the US dollar led to a steep rise in purchasing costs during March,” Markit, which compiled the data, said in a report. In February, Egypt’s annual urban consumer price inflation eased to 9.1 percent from 10.1 percent the month before, the official statistics agency CAPMAS said earlier this month. March inflation rates are due on April 10.
The survey showed an increase in the pace of layoffs, with the employment subindex contracting to 45 points in March from 47.7 the month before. President Abdel Fattah al-Sisi has pledged to reduce the jobless rate to 10 percent over the next five years. It stood at 12.8 percent in December, according to the government. Analysts believe it may be much higher.
The economy grew around 4.2 percent in 2014/15 and is expected to grow around 4.4 percent in 2015/16.