Egypt's non-oil private sector activity contracted at its sharpest pace in 31 months in March, driven by falling demand and uncertainty over the exchange rate, according to the PMI survey released by Emirates NBD Egypt on Tuesday.
The Emirates NBD Purchasing Managers' Index, an indicator based on a survey of business conditions in the Egyptian non-oil private sector, fell to 44.5 in March, down from 48.1 in February. This represents the sixth consecutive month of readings below 50, which indicate a contraction.
The survey found that the contraction in output, new orders and employment has increased in pace; and new export businesses continue to deal with a decline in new orders as cautious international clients were uncertain about the Egyptian economy and the exchange rate in particular.
“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 EGP," Jean-Paul Pigat, senior economist at Emirates NBD, said in the release.
Last month, the Central Bank of Egypt devalued the pound by more than 14 percent to the dollar, in a first step "to adopt a more flexible policy to heal the exchange rate distortions and to sustainably and regularly restore the circulation of foreign currency in banks,” according to the bank.
Egypt has suffered from a foreign exchange crisis since the 2011 revolution which toppled Hosni Munbarak, and was followed by political and security unrest that spooked investors and tourists, the country's two main sources of hard currency.
"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," said Pigat.
Companies are also facing a sharp rise in inflation of costs driven by the acute currency devaluation in March.