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Daniel Marc Richards - MENA Economist
Published Date: 05 February 2019
Despite the poor headline reading in the Emirates NBD Purchasing Managers’ Index for Egypt’s non-oil private sector in January – it fell from 49.6 in December to 48.5, the lowest level since December 2017 – there were nevertheless some promising data in the sub-components that could presage an improvement in the Egyptian economy in the coming months. Egypt’s recovery over the past two years has so far largely been driven by external rebalancing and public investment, while the private sector has remained under pressure, in part as a result of ongoing reforms. Nevertheless, while contractionary, 2018 was on average (49.5) the strongest year in the PMI since 2014, and we anticipate a continued strengthening in the private sector this year.
Weighing on the headline figure were the outsize-weighted output and new orders components, which both fell on the previous month. Respondents cited a number of factors behind this, including adverse weather conditions, and generally poor market conditions. External demand was also weak, as export orders experienced a fall for the fifth month in a row, and business optimism among respondents fell to the lowest level since October 2016. Although only 3% of respondents expected a decline in conditions over the next 12 months, with the vast majority (76%) expecting no change, optimism has declined fairly steadily from its recent peak at the close of 2017. Global instability was among respondents’ concerns.
Nevertheless, in spite of the weak headline data, there were some improvements in the January survey, not least in prices. Input prices fell to a series low in January, led by a marked slowdown in purchase costs. These had spiked in mid-2018 as subsidy reforms led to a rapid increase in utility costs and other expenses for firms, but these inflationary pressures have begun to weaken in recent months. This in turn enabled firms to cut output prices, which posted a sub-50.0 reading for the first time. This should contribute to an ongoing decline in CPI inflation, which fell to 12.0% in December, and potentially pave the way for the central bank to begin loosening monetary policy, which would give a much-needed boost to the private sector.
Source: IHS Markit, Emirates NBD Research
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