Egypt: Short-term effects of pound liberalization hit Egypt's non-oil private sector
February 5, 2017
Operating conditions among Egyptian businesses continued to deteriorate in January, affected by skyrocketing prices and subdued domestic demand. The Emirates NDB Egypt Purchasing Managers’ Index (PMI) picked up from 42.8 in December to 43.3 in January. Despite the slight increase, the PMI index is still below the 50-threshold that separates contraction from expansion in the non-oil producing private sector, where it has been since October 2015.
Egypt started the year in much the same way as it had finished 2016. The severe weakening of the Egyptian pound following its liberalization in early November caused prices of Egyptian goods to soar, particularly in the case of those imported. This situation continued to play a key role in the downturn in operating conditions in Egypt in January. Greater input costs prompted firms to increase their average selling prices at the fastest pace on record, further deterring clients from purchasing non-crucial goods. This led to reductions in both output and new orders, which forced many firms to lower their staff levels again. New orders from abroad also decreased in a context of heightened security concerns across important markets in the region. Inventories continued to dwindle due to firms’ reticence to purchase amid inflated prices.
Jean-Paul Pigat, Senior Economist at Emirates NBD, comments, “January’s survey provides little evidence that an economic recovery is yet underway at the start of 2017. It is, however, encouraging that the new ‘Future Output Index’ of the PMI suggests that firms have become increasingly optimistic on the economic outlook following November’s devaluation of the EGP.”
Author: David Ampudia, Economist