Khatija Haque - Head of MENA Research
Published Date: 06 September 2017
Egypt’s headline PMI rose to 48.9 in August, the highest reading since July 2016. Nevertheless, the index remains below the neutral 50.0 level, indicating a further modest deterioration in business conditions last month. Output declined at a slower rate than July and new orders were only slightly down on average last month. Overall new order growth was supported by higher export orders, which increased at the fastest rate in three months in August.
However, a key theme that was evident in the survey commentary once again was that high inflation continued to weigh on domestic demand and business activity. Overall input prices increased sharply in August, albeit at a slower rate than July. Higher electricity tariffs came into effect at the start of last month which would have contributed to higher input costs across the board. Some of these higher input costs were passed on to clients, with output (selling) prices rising at a faster rate than in July.
Staff costs also increased markedly as firms responded to higher living costs by raising salaries. However, firms also reduced employment at a faster rate in August, with the employment index declining to 47.3, the lowest reading in three months.
Despite the decline in output and employment last month, firms’ optimism increased to the highest level since February this year. 64% of panellists expected their output to rise over the next twelve months, compared to just 49% in July’s survey. Less than 10% of firms expected their output to decline over the coming year.
Overall, the survey data for August supports our view that Egypt’s economy is stabilising after the shocks of devaluation, higher interest rates and difficult economic reforms. The data on export orders is particularly encouraging and as inflationary pressures start to ease, we expect domestic demand to show signs of recovering as well.
Source: IHS Markit, Emirates NBD Research
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