ENBD PMI: Business conditions deteriorate to least extent since August
The Egyptian non-oil private sector continued on a downward path in February, as business conditions worsened for the 17th straight month, led by sharp declines in both output and new work.
However, the respective rates of contraction softened since January. Firms reduced their payroll numbers again due to lower output requirements. Meanwhile, the weak exchange rate relative to the US dollar continued to be a key factor behind steep increases in output charges and cost burdens.
The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the Egyptian private sector.
“While the PMI data still indicated a contraction in Egypt’s private sector in February, the headline index rose to its highest level in six months. New export orders were only marginally lower than in January, signalling improving external demand, and the rate of decline in output was slower last month. Inflationary pressures remain high, but the rate of input price inflation eased markedly in February. Overall, there are signs of stabilisation in the non-oil private sector,” said Tim Fox, Head of Research and Chief Economist at Emirates NBD.
The headline seasonally adjusted Emirates NBD Egypt Purchasing Managers’ Index™ (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – posted 46.7 in February. Despite rising from 43.3 in January, the latest reading stretched the current downturn to 17 months – the longest sequence of retreat in the survey’s history. However, the latest reading was the highest seen in six months.
Underlying the overall worsening in business conditions were further reductions in output and new work. Both fell sharply, though the respective rates of decline eased since January. Anecdotal evidence highlighted subdued demand, challenging economic conditions and high inflationary pressures. Moreover, new export business declined in February, the twentieth successive month in which this has been the case.
On the price front, Egyptian non-oil private sector companies recorded a further rise in overall input costs during February. The increase was driven by higher purchasing prices and, to a lesser extent, staff costs. According to anecdotal evidence, the weak exchange rate relative to the US dollar was the principal factor behind the increase in input prices. Subsequently, the ongoing rise in output charges was extended into February as companies generally passed on higher cost burdens to clients.
Meanwhile, panellists commented that the unavailability of raw materials at vendors contributed to a further lengthening of average delivery times and a fractional increase in backlogs of work.
Companies reduced their purchasing activity for the seventeenth straight month in February. Though sharp, the rate of contraction was the weakest since August 2016.
Employment in Egypt’s non-oil private sector fell for the twenty-first month running during February. The rate of job shedding slowed to the weakest in one year but was solid overall.
Finally, the degree of optimism among Egyptian firms improved to an eight-month high. Companies expect market conditions to improve, thereby boosting output over the coming year.