Egypt: PMI largely unchanged in May, signals a continuing deterioration in business conditions
May 5, 2017
The Emirates NBD Egypt Purchasing Managers’ Index (PMI) inched down from a nine-month high of 47.4 in April to 47.3 in May, staying stubbornly below the 50-point threshold that separates contraction from expansion in the non-oil producing private sector. This is a sign that, although the green shoots of recovery are gradually emerging, Egyptian firms are still struggling and are being squeezed by weak domestic demand and soaring input costs.
May’s relatively flat reading was underpinned by a continuing decline in output and new orders, although in each case the pace of contraction was the second slowest in nine months. In response to reduced business activity, firms continued to lay off workers. More positively, although demand at home remained moribund, firms had more success overseas; export order growth in May expanded at the fastest rate on record. The contrasting fortunes of the domestic and external sectors are a direct consequence of the sharp depreciation of the pound in November last year. Although it has put wind in the sails of exporting firms, it has led to price hikes at home, reducing households’ purchasing power. Input costs continued to rise markedly in May, with companies looking to protect their margins by raising output costs as a result.
According to Khatija Haque, Head of MENA Research at Emirates NBD, “Egypt’s private sector appears to be stabilizing, with the PMI largely unchanged from April. Encouragingly, new exports orders rose at the fastest rate on record in May, suggesting that the sharp devaluation of the pound in November is having a positive impact on exports.”
Author: Oliver Reynolds, Economist