Egypt’s non-oil private sector firms reported ongoing difficulties in September, as business conditions worsened for the twelfth straight month, according to the latest Emirates NBD Purchase Managers’ Index (PMI).

Chief among these issues was falling output – the rate of decline accelerated and was marked. Client demand deteriorated both at home and abroad, linked to the general economic downturn and spiking inflation, the survey said.

In fact, high prices continued to hamper the sector as a whole. Currency weakness relative to the dollar and a newly introduced value-added tax led to faster rises in both input and output prices. This contributed to a lack of new work, and also motivated a number of companies to cut back on staff. Employment fell at a similar pace to August’s survey record.

The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the Egyptian private sector.

The headline seasonally adjusted Emirates NBD PMI dropped to 46.3 in September, from 47.0 in August.

As well as marking a one-year downturn, the latest reading pointed to an accelerated contraction for the second straight month. That contrasted with the picture at the start of the third quarter, when the index had shown tentative signs of recovery by edging closer to the neutral 50.0 threshold (48.9).

Jean-Paul Pigat, senior economist at Emirates NBD, said: “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.”

Key findings

Business conditions worsen markedly amid faster declines in output and new work
Rate of job losses little-changed from August’s record
Price pressures intensify thanks to currency weakness and VAT

Lower output remained a key factor behind worsening business conditions. The latest fall was the sharpest in five months. Data showed that the fall was at least partly linked to a lack of new work. New business dropped at the fastest pace since March, with panellists commenting on sharply rising prices and subsequently muted client demand. New export orders also declined, but at a slower rate than in August.

Inflationary pressures continued to weigh heavily on Egypt’s non-oil private sector firms in September. Purchasing costs rose steeply on the back of currency weakness against the US dollar. Charges increased as a result, and at a survey-record pace. Respondents also mentioned the recent introduction of a value-added tax as a factor behind higher selling prices.

As well as affecting demand, high prices impacted on employment and purchasing in September. Job losses were again substantial. A number of workers left voluntarily in order to search for better job opportunities, but there were also reports of companies shedding staff as part of cost cutting measures. Purchase price inflation reduced the incentive for input buying, which fell sharply. Firms preferred to deplete their stocks of pre-production items in order to meet client demand.

Backlogs of work meanwhile rose for the twelfth month running. The rate of accumulation was only slight, however. Those companies that saw an increase reported difficulties in importing raw materials and labour shortages. With both cash and materials in short-supply, average lead times lengthened markedly. – TradeArabia News Service