Egypt: Deterioration in business conditions intensifies in March
April 4, 2017
Egyptian businesses continue to feel the pinch of a weak pound and subdued demand. The Emirates NBD Egypt Purchasing Managers’ Index (PMI) edged down from 46.7 in February to 45.9 in March, falling further below the 50-point threshold that separates contraction from expansion in the non-oil producing private sector. This puts an end to three consecutive monthly increases in the index and underscores the hardships that Egyptian firms have to struggle with in the new economic reality that followed the implementation of economic reforms in November last year.
March’s deterioration in operating conditions was driven by more pronounced declines in production and new orders. Demand remained subdued both in the domestic economy—sky-high inflation and a weakened Egyptian pound have taken a bite out of consumer spending—and from abroad, with multiple firms linking the decrease in external demand to security concerns in neighboring Libya. Dwindling volumes of new orders and unaffordable imported raw materials prevented firms from increasing their input buying, with businesses resorting instead to drawing from existing inventories. Although the picture painted by the headline figure is overwhelmingly bleak, there are some green shoots. Cost-inflation pressures, albeit still sizeable, were the weakest in over a year: This is in line with the Central Bank’s assessment of the economy, according to which most inflationary pressures are transitory and will fade away in upcoming months. In addition, the pace of job shedding was the least pronounced in over a year.
For an economic upturn to materialize, however, more than a few green shoots are needed. On this, Tim Fox, Head of Research at Emirates NBD, comments: “The March PMI highlights ongoing weakness in Egypt's private sector. Although the economy's rebalancing 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. One silver lining from the report is that inflationary pressures are continuing to ease.”
Author: David Ampudia, Economist