Egypt Non-Oil Business Activity Falls to Lowest Since 2013

(Bloomberg) -- Business activity in Egypt hit its lowest level in more than three years in October, shrinking for a 13th month amid a foreign currency shortage, the pound's weakness in the black market and accelerating inflation.

The Emirates NBD Purchasing Managers Index for non-oil activity fell to 42 from 46.3 the month before, the weakest since July 2013, according to report released Thursday. A level below 50 represents a contraction in business activity. On Thursday morning, free-floated the pound, fulfilling a key condition to finalizing a $12 billion loan from the International Monetary Fund.

The survey “highlights the increasingly difficult operating environment confronting Egyptian private sector firms,” Jean-Paul Pigat, senior economist at Emirates NBD, said in the report. “It is difficult to see the situation improving before an IMF agreement is signed, as the ongoing FX shortage and EGP weakness on the parallel market are the main factors undermining economic output at the moment.”

The dollar surged in the black market to a nearly 100 percent premium over the official rate of 8.88 pounds per dollar over the past few days, amid mounting expectations the currency would be devalued.

Officials say the loan is key to shoring up confidence in the Egyptian economy and luring new investments, as well as bridging a financing gap. Its finalization has been pinned to reforms the government has yet to fully enact, including exchange rate flexibility and reduced fuel subsidies.

The October PMI showed that new orders fell to 36.4 compared to 44.8 the prior month, marking its lowest level since August 2013.

To contact the reporter on this story: Tarek El-Tablawy in Cairo at teltablawy@bloomberg.net. To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Amy Teibel, Stuart Biggs