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Daniel Richards - MENA Economist
Published Date: 05 February 2018
While Egypt’s headline Emirates NBD Purchasing Managers’ Index (PMI) reading remained just shy of the 50.0 neutral mark in January, at 49.9, the signs are encouraging as we begin 2018. The reading is still negative, signalling a marginal contraction in the Egyptian non-oil private sector, but it has improved on the 48.3 recorded in December, and is markedly stronger than the 46.8 averaged over the previous two years. As the reforms enacted from November 2016 as part of an IMF programme take effect on the wider economy, we expect that the PMI will begin to more consistently broach the 50.0 mark over the coming months. In November, the headline figure rose to 50.7, which was the first positive reading in over two years.
A pick-up in new export orders in particular stands as an indication that the difficult economic reforms enacted in late 2016 are starting to pay off - the new export orders index rose to 51.2 in January. Those exporting abroad have benefited from a cheaper pound making their goods and services more competitive. On the flipside, domestic orders have struggled owing to higher prices, and the wider New Order Index was (just) negative at 49.9 in January. This is an improvement on the 47.2 the previous month, however, and as inflation falls we expect that new domestic orders will fare better.
The input costs index remains strongly in positive territory, at 63.2 in January, but this has fallen from a two-year average of 76.6. As the effects of 2016’s sharp currency depreciation are now in the base, we expect that inflationary pressures will be significantly weaker over the coming months. Headline CPI inflation was 21.9% y/y in December, compared to an average of 30.8% over January to October.
Significantly, Egyptian businesses remain overwhelmingly positive towards the economy, with the future output index at 80.5 in January. Although this marked a three-month low, 67.0% of respondents expected higher output in 12 months’ time, with some citing expected improvements in demand conditions and market stability. This chimes with our expectation that falling inflation, coupled with anticipated easing of monetary policy by the Central Bank of Egypt, will encourage greater domestic consumption.
Source: IHS Markit, Emirates NBD Research
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