Egypt: Firms continue to feel the pinch in February, but there are glimmers of hope on the horizon
March 5, 2017
Operating conditions among Egyptian businesses deteriorated in February compared to the previous month, with firms impacted by elevated inflation and subdued internal demand. The Emirates NDB Egypt Purchasing Managers’ Index (PMI) picked up from 43.3 in January to 46.7 in February, remaining below the 50-point threshold that separates contraction from expansion in the non-oil producing private sector. Despite the continued decline, the PMI rose to its highest level since August 2016 and marked the third consecutive monthly increase since the implementation of economic reforms in November last year.
February’s improvement was driven by less pronounced falls in several sub-categories which make up the index. Output and new work continued to decline, with internal demand dampened by sky-high inflation, although the reductions were less pronounced than in January. On the external front, new export orders also dipped, albeit marginally, with firms likely benefiting from increased competitiveness as a result of the devaluation of the pound. Firms also observed a further rise in import costs, which were passed on to consumers in the form of higher output charges. Employment in February in the country’s non-oil private sector continued to fall, although the rate of job shredding eased relative to last month. Meanwhile, the unavailability of raw materials lengthened delivery times and caused backlogs of work to tick up. Despite the tough economic backdrop, the degree of optimism of Egyptian firms reached an eight-month high. According to Tim Fox, Head of Research and Chief Economist at Emirates NBD, “overall, there are signs of stabilization in the non-oil private sector.”
Author: Oliver Reynolds, Economist