Egypt’s non-oil private sector began 2017 in the same way that it ended 2016, with economic conditions worsening again, according to seasonally adjusted Emirates NBD Egypt Purchasing Managers’ Index (PMI).

Underpinning the downturn were ongoing reductions in output and new orders. On the price front, greater cost pressures led firms to raise their average prices charged at the sharpest rate in the survey history to date. Concurrently, firms were reluctant to take on additional staff, and employment dipped for the twentieth straight month.

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.

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

Key findings

•    Output and new orders fall sharply
•    Weak exchange rate leads to higher cost burdens
•    Output charge inflation at record high

The headline seasonally adjusted Emirates NBD Egypt Purchasing Managers’ Index (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – posted below the crucial 50.0 mark for the sixteenth month in succession. Despite rising from 42.8 in December to 43.3 at the start of 2017, the latest reading was consistent with a sharp deterioration in business conditions.

The sub-50.0 PMI reading mainly reflected lower output and new work during January. Both fell simultaneously for the sixteenth month in a row. Anecdotal evidence highlighted a general inflated market and the ongoing economic downturn. Another factor leading total new work to fall was a marked contraction in new export work, which reportedly occurred due to security concerns across key markets in the Middle East.

At the same time, data showed that a sharp rise in output charges contributed to the downturn in Egypt’s non-oil private sector output, with inflation reading a record high. Upward pressures on selling prices reflected higher purchasing costs, with roughly 76 per cent of monitored companies noting an increase in January. According to panellists, the weak exchange rate relative to the US dollar was reported to be the key factor behind another steep increase in input costs, although some firms also mentioned higher fuel costs. Moreover, average salaries rose in line with higher living costs.

In response to falling output requirements, Egyptian non-oil private sector companies lowered employment further in January, marking a 20-month sequence of job losses. The rate of job shredding was among the most marked in the survey history so far. Also, staff had either reportedly left their posts in search of better job opportunities or to retire.

Meanwhile, raw material shortages stemming from high prices led firms to reduce purchasing activity, which in turn resulted in another monthly drop in pre-production inventories.

Outstanding business increased at the start of the year, albeit only fractionally. This followed no change in backlogs in December.

Finally, average vendor performance worsened at a sharp pace in January amid reports of raw material shortages. – TradeArabia News Service