Egypt: PMI plunges in October
November 3, 2016
The Emirates NDB Egypt Purchasing Managers’ Index (PMI) plummeted from 46.3 in September to 42.0 in October, 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.
October’s dismal reading reflected steep contractions in output and new orders due to harsh inflation and a widespread economic downturn. A weakening Egyptian pound relative to the U.S. dollar and the introduction of a Value-Added Tax have fueled cost pressures, making raw materials increasingly unaffordable and restraining their supply. Record-high purchasing prices weighed on activity, constraining both output and new orders, while output prices climbed to a survey-high. With inflationary pressures on the rise, client demand and new business dropped in October. Since raw materials are prohibitively expensive, companies resorted to drawing from pre-production inventories in a bid to meet lackluster inflows of new work, which led to both input buying and stock levels decreasing at the fastest pace seen since the survey started in April 2011. The shortage in raw materials also saw another expansion in backlogs of work, while staffing levels continued to decrease for the seventeenth month in a row.
Jean-Paul Pigat, Senior Economist at Emirates NBD, suggested that, “October’s survey highlights the increasingly difficult operating environment confronting Egyptian private sector firms. It is difficult to see the situation improving before an IMF agreement is signed, as the ongoing FX shortage and EGP weakness on the parallel market are the main factors undermining economic output at the moment.”
Author: David Ampudia, Economist