Emirates NBD Egypt PMI™

The downturn in Egypt’s non-oil private sector gathered speed during November. Both output and new business fell sharply, leading business conditions to worsen at a marked pace. The respective rates of contraction were the quickest since September 2013. Moroever, the sector was weighed down by survey-record declines in employment and stocks of purchases. On the price front, reports of currency weakness were more prevalent than in previous months, thereby placing strong inflationary pressure on purchasing costs. This was barely passed on to consumers, however, as charges remained stable.  

The survey, sponsored by Emirates NBD and produced by Markit, contains original data collected from a monthly survey of business conditions in the Egyptian private sector.

Commenting on the Emirates NBD Egypt PMITM, Jean-Paul Pigat, Senior Economist at Emirates NBD, said:

“The fall in the PMI was not entirely unexpected this month, particularly following the Russian air disaster. Once again, respondents are citing FX issues as a factor that is resulting in declining output across the private sector, which simply reinforces our view that a macro recovery will depend, in part, on authorities easing capital controls and allowing the EGP to weaken in 2016.” 

Key Findings

• PMI drops further amid sharp declines in output and new work
• Survey-record fall in payroll numbers
• Purchase costs driven higher by currency weakness 

The headline 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 – slipped to the lowest mark in 26 months during November (45.0). Down from October’s eight-month low (47.2), the reading pointed to a marked worsening in business conditions. The sector has now contracted in eight out of 11 months so far in 2015.

Reflective of the overall trend, output and new orders fell more quickly in November. Moreover, the respective declines were the sharpest in more than two years. A depreciation of the Egyptian pound against the US dollar was reportedly a factor behind lower new work, and panellists reduced their output as a result. New export business also dropped sharply, amid reports that security issues had hampered demand in international markets.

A by-product of lower business requirements was another strong reduction in staffing levels midway through Q4. In fact, the rate of job shedding accelerated for the third straight month to the fastest in the series history. Anecdotal evidence suggested that some workers had left voluntarily in order to search for better job opportunities. Meanwhile, backlogs of work continued to rise, albeit only slightly.

Egypt’s non-oil private sector firms were more cautious with regard to their purchasing during November. Input buying fell at the steepest rate since August 2013, contributing to a survey-record decline in stocks of purchases. A number of monitored companies mentioned that they were downsizing, meaning that they preferred to draw on input stocks in response to incoming new work.

The weakness of the Egyptian pound (particularly against the dollar) manifested itself in higher purchase prices during November. The rate of inflation picked up to a 31-month high, mirroring the trend seen for overall input costs.

In contrast, average tariffs were unchanged in November. Some panellists commented on inflationary pressure from rising costs, while others decided to offer discounts in an attempt to secure new clients.