Will Egyptian Revolution Result in Egyptian Financial Crisis

by Derek Loosvelt | February 01, 2011

To the surprise of many economic analysts and observers, the eight-day-old Egyptian revolt (which moments ago resulted in Egyptian President Hosni Mubarak announcing his departure come September) has not adversely affected the global equity markets. In fact, in the U.S., the Dow Jones Industrial Average and the S&P 500 both closed today at two-and-a-half-year highs. The Dow surpassed the 12,000-point for the first time since June 19, 2008, and the S&P 500 topped 1,307 to hit its highest close since June 25, 2008.

Reasons given for the surge included positive earnings releases from some of the country's largest public companies (Pfizer, UPS, Archer Daniels, and Tupperware Brands) as well as encouraging manufacturing figures ("the Institute for Supply Management's index of manufacturing activity rose to 60.8 in January, the highest since May 2004).

Other good news included the fact that Egypt's Suez Canal -- which processes 10 percent of the world's trade (45 to 50 ships pass through the Canal each day) -- is still open for business, with no signs of closing anytime soon.

All of this proved to "overshadow the turmoil in the Middle East," according to The Wall Street Journal, "even as protests and signs of change spread to Jordan and Yemen."

Even so, markets inside Egypt are far from stable, and if the revolt lasts for weeks instead of days, a run on banks and ensuing inflation inside the Middle Eastern country could lead to a wider crisis.

After Egyptians withdrew hundreds of millions dollars (that is, pounds) from Egyptian banks, the banks closed their doors. Soon, as Egyptians begin to run out of money, the banks will have to re-open -- and when they do, they'll do so at the risk of millions of additional pounds in withdrawals.

In addition to banks, other local businesses, including Nissan Motor (which manufactures pickups near Cairo), have shut their doors due to the revolt. And Moody's recently downgraded the country's bond rating from stable to negative.

However, for the moment, the news in Egypt is mostly good: the times they are a changin, Mubarak is a leavin, and you can still enjoy a personal pan pizza while peering at the Great Pyramids of Giza.

(WSJ)

(Al Jazeera)

Filed Under: Finance


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