Egypt: PMI continues slide in November
December 5, 2016
The Emirates NDB Egypt Purchasing Managers’ Index (PMI) decreased from 42.0 in October to 41.8 in November, the lowest reading since July 2013. As a result, the PMI index now lies further below the 50-threshold that separates contraction from expansion in the non-oil producing private sector, where it has been since October 2015.
Soaring inflation and a broad-based economic downturn were behind November’s gloomy reading. The free-floating of the Egyptian pound and its subsequent steep depreciation against the U.S. dollar have weighed heavily on the costs of raw materials, making these increasingly unaffordable and in short supply. Record-high cost inflation, coupled with plummeting business sentiment, caused output and new orders to fall further in November. The latter was also the result of customers being hesitant to commit to orders amid spiraling prices. In an attempt to staunch rising costs, firms lowered their staff levels at a faster pace than in October. A lack of raw materials also contributed to a rise in backlogs of work, although the increase was partially muted by subdued demand. As in October, companies resorted to drawing from pre-production inventories to satisfy demand in November, which led to another reduction in stocks.
Jean-Paul Pigat, Senior Economist at Emirates NBD, suggested that, “The ongoing downtrend evident in November’s survey highlights that there will be no quick fixes to Egypt’s economic difficulties, even following the EGP devaluation earlier in the month. In this environment, it is crucial that authorities remain committed to their IMF-supported reform program in order to anchor investor confidence.”
Author: David Ampudia, Economist