Egypt’s non-oil business activity declined for the seventh consecutive month in April as a continuing hard currency shortage and a weakening local currency made input materials less accessible, the Emirates NBD Egypt Purchasing Managers Index showed on Tuesday.
The results of the monthly survey of purchasing managers are the first out since the Central Bank of Egypt allowed the Egyptian pound to depreciate to its lowest in over 10 years in mid-March, and announced a more flexible exchange rate policy to address a foreign-currency crunch.
“Egypt’s private sector continues to struggle amid the FX shortage,” said Jean-Paul Pigat, senior economist at Emirates NBD, commenting on the survey’s findings.
“Although further EGP weakness will eventually help lay the foundations for an economic recovery, in the short term uncertainty over the exchange rate could see additional declines in output, and a further rise in inflationary pressures,” he said.
The PMI indicator posted 46.9 in April, up from a 31-month low of 44.5 in March but still below 50, indicating a “solid contraction” of Egypt’s non-oil private sector.
Egypt has suffered from an FX shortage as foreign currency inflows deteriorated in the years following the 2011 uprising that ousted president Hosni Mubarak, particularly after tourism revenues plummeted following the downing of a Russian airliner in Sinai last October, allegedly by the Islamic State militant group.
Subdued client demand and a devalued pound that made raw materials largely unaffordable were cited as the main reasons behind a slowdown in production.
Input costs and output charges increased and input stocks fell at the fastest rates in the survey’s history, as firms depleted existing stocks to fulfill incoming orders.
Continuing exchange rate uncertainty and concerns about security in the country kept prospective international clients at bay, according to survey responders.
Despite announcing the adoption of a more flexible exchange rate last month, the CBE has only let the pound strengthen once from 8.85 to 8.78 against the dollar, a rate which it has since maintained in its weekly foreign currency auctions.
The US dollar is currently changing hands for 11.05 pounds on the black market on Tuesday, according to two traders surveyed by Reuters.