Wednesday 04, January 2017 by Sarah Spendiff

Egypt’s PMI update highlights difficulties for the private sector

December’s Purchasing Managers’ Index (PMI) for Egypt continued to point to difficult operating conditions in the private sector economy at the end of 2016

The headline PMI reading improved slightly from November’s 41.8, however at only 42.8, and the Emirates NBD Research report suggests a relatively rapid pace of decline. This brought the average PMI for the year to 46.0, which is the lowest in the survey’s history. The Q4 average was also a record quarterly low at only 42.2.

The main factor weighing on business activity stems from the weakness in the Egyptian pound, which according to Markit has led to substantial cost pressures, raw material shortages, and a downturn in client demand. The output and new orders elements of the PMI remained well in contraction territory at 39.0 and 38.0 respectively.

Once again, companies reduced their payroll numbers as a result of the downturn, with the Employment Index suggesting firms have cut job numbers for 19 consecutive months. This would match with other data from December’s report that showed firms have been downsizing, and reducing their purchasing activity as a result.

The most noticeable improvement in the PMI survey in the past several months has been seen in new export orders, which rose to 47.8 in December from 35.8 in October. Although still declining, this was the slowest pace of contraction in export orders since September 2015, with some firms mentioning that the EGP devaluation had helped generate new business. Although Egypt does not have a large export-oriented manufacturing base, authors of the report expect this sector to be the first to benefit from a more competitive currency.

When commenting on the downturn in demand in December, some panellists cited the tourism sector as a particular point of weakness. This fits with other data that has been released from official sources showing a drop in tourist arrivals between January-October to 4.3 million compared to 8.3 million in the same period last year.

The rise in inflationary pressures was evident within both the output and input price indices. The former remained near a series high of 63.5, with over one quarter of firms raising prices charged to customers as a result of higher input costs. The jump in purchase prices has been pronounced, with roughly four out of every five respondents seeing an increase from the previous month. The combination of EGP devaluation, reductions in energy subsidies and the recent introduction of a VAT – while all beneficial for the economy’s long-term outlook – will keep inflation in the double-digits at least through the first half of 2017.

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