Egypt received some unsettling news after President Abdel Fattah al-Sisi’s upbeat visit with U.S. President Donald Trump: Gains in private sector economic activity reversed course in March, suggesting the economy hasn’t yet turned the corner despite painful austerity measures and currency reform.
Analysts had said a cordial White House visit would help to validate the Egyptian leader’s war on Islamists and measures he promoted to boost an economy that’s struggled since longtime leader Hosni Mubarak was overthrown in 2011. Al-Sisi, eager to keep about $1.5 billion in annual U.S. aid intact, received a warm welcome on Monday from Trump, who said he’s “done a fantastic job in a very difficult situation.”
The tone was a sharp departure from the one taken by the Obama administration, which had been critical of Al-Sisi’s deadly crackdown on Islamists and other opponents, and had never hosted him in Washington.
But the economic news drove home the challenges the Egyptian president still faces. The Emirates NBD Purchasing Managers’ Index showed that economic activity for the country’s non-oil private sector reversed course in March, ending three months of gains by dropping to 45.9 in March from 46.7 in February. The New Orders sub-index slipped to 43.8 from 44. Readings below 50 indicate the economy is contracting.
“Although the economy’s re-balancing process is proceeding as one would expect — evident through a narrowing in the trade deficit and higher FX reserves — it will take some time before this translates into stronger growth momentum,” Tim Fox, head of research and chief economist at Emirates NBD, said in a statement.
Gains in the December through February period had suggested that the government had begun to see positive results from its Nov. 3 decision to lift foreign-exchange controls and raise fuel prices, moves that sealed a $12 billion International Monetary Fund (IMF) loan. Foreign investments are up and net foreign reserves rose to a six-year high of $28.5 billion at the end of March.
Yet the latest PMI reading showed the private sector was still struggling with other consequences of the reforms: a pound that lost half of its value relative to the dollar and more expensive raw materials. Consumer prices surged after the pound was floated, with annual core inflation topping 33 percent in February, although month-on-month inflation slowed.
Businesses have passed on those costs to consumers in the North African nation, who aren’t comforted by officials’ assurances that the hardships were expected and will pass. About half of Egypt’s 92 million people live near or below the poverty line.