Daniel Marc Richards - MENA Economist
Published Date: 04 January 2018
Egypt’s Emirates NBD Purchasing Managers' Index (PMI) readings turned negative in December, signalling a renewed contraction in the non-oil private sector following the first positive reading in over two years recorded in November. The headline seasonally adjusted figure fell from 50.7 to 48.3. This is below the neutral 50.0 level and suggests that although the wide-ranging economic reforms being undertaken in Egypt are starting to have a positive effect on activity, the recovery is fragile and will remain subject to setbacks. Nevertheless, there are grounds for optimism given that the fourth quarter’s decline was weaker than the historical average since 2011.
One of the drivers of the higher output in November was strong demand for Egyptian exports, which grew at their fastest rate on record. However, external demand dampened in December, with the latest survey showing a contraction in the net level of new export orders, and the export orders index fell from 55.5 to 49.2. The new orders index also turned contractionary once more, falling from 51.5 to 47.2, with 17.3% of respondents noting lower levels of demand.
On a positive note for firms, the overall input prices index continued to fall, coming in at 61.3 compared to 63.3 in November. The depreciation of the local currency following the removal of its dollar peg in late 2016 saw input costs rise sharply, but the effect of this has been waning in recent months. Nevertheless, the output prices index has also been weakening – falling from 52.2 in November to 50.0 – suggesting firms are finding it increasingly difficult to pass these costs on to consumers.
Although activity suffered a setback in December, respondents remain strongly positive about Egypt’s future trajectory, with 70.0% expecting greater output in 12 months’ time, compared to 68.7% in November. There was a higher percentage of purchasing managers expecting lower output in a year’s time – it has risen from 5.0% to 8.0%. Nevertheless, the vast majority anticipate improving output, with economic stability cited as a contributing factor, in line with our view that the Egyptian economy will continue to strengthen in the coming quarters.
Source: IHS Markit, Emirates NBD Research
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