Egypt: PMI dips further in September
October 5, 2016
The Emirates NDB Egypt Purchasing Managers’ Index (PMI) decreased from August’s 47.0 to 46.3 in September, the lowest reading since the Central Bank devaluated the Egyptian pound against the U.S. dollar six months ago. The PMI index has been stuck below the 50-threshold that separates contraction from expansion in the non-oil producing private sector since October 2015.
The reading in September reflected harsher contractions in production and new orders, the result of a general economic downturn and soaring inflation. Sluggish demand dynamics stemmed from a weakening currency relative to the dollar and the introduction of a Value-Added Tax. The tax also drove rises in both input and output prices. Record-high output prices prevented strong demand for new work, forcing a number of companies to reduce their staffing levels, while higher input prices fueled the firms’ reluctance to engage in purchasing activities. With cost pressures on the rise, input buying and pre-production inventories decreased at faster rates compared to August.
Jean-Paul Pigat, Senior Economist at Emirates NBD, suggested that, “the introduction of a Value Added Tax (VAT) appears to have played a role in curbing output and pushing inflation higher in September. While many of the economic reforms expected in Q4 will ultimately prove beneficial for long-term stability, in the near term they could result in a further deterioration in business conditions for the private sector.”
Author: David Ampudia, Economist