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Egypt non-oil business hits 31-month low in March

CAIRO, April 5, 2016

Egypt’s non-oil private sector business worsened for the sixth straight month, marking the strongest contraction in over two-and-a-half years, driven by sharper declines in output, new orders and employment, a report said.

 Notably, input stocks fell at a survey-record pace amid muted client demand. Another key area of uncertainty in March was the exchange rate, added the survey sponsored by Emirates NBD and produced by Markit.

Currency weakness against the US dollar was cited as a factor restricting new work, and it also contributed to a steep rise in purchasing costs. Subsequently, charges rose to the greatest extent in nearly three years.

Commenting on the Emirates NBD Egypt PMI, Jean-Paul Pigat, senior economist at Emirates NBD, said: “The deterioration in business conditions is not entirely surprising as the survey took place at a time of elevated uncertainty that coincided with the devaluation of the EGP. Looking ahead, we believe that the move to a more competitive exchange rate has now reduced a key source of risk, and could therefore set the stage for a broader economic recovery in the second half of 2016.”

Key findings

•    Faster contractions in output, new orders and employment

•    Currency weakness weighs on demand, and leads to sharp cost inflation

•    Survey-record fall in pre-production inventories

Falling from 48.1 in February to 44.5, the headline seasonally adjusted 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 – was at its lowest in 31 months during March. The latest figure stretched the current downturn to six months. It also meant that the average reading for Q1 2016 (46.9) was little-changed since Q4 2015 (46.8).

The contraction of the sector as a whole was characterised by lower output and new work in March. Activity fell at the quickest rate since August 2013, marking a six-month period of decline. New business showed a similar trend, as signalled by the respective index dropping to a two-and-a-half year low. According to anecdotal evidence, output decreased thanks to a lack of new work. Subdued demand was linked in turn to liquidity shortages stemming from currency depreciation against the dollar.

Falling new export business was also behind the reduction in total new orders during March. A number of panellists suggested that prospective international clients had been cautious due to uncertainty surrounding the Egyptian economy, particularly the exchange rate.

The rate of job shedding accelerated to the fastest in four months during March. There were reports that workers had left their posts in order to search for better job opportunities. Meanwhile, outstanding business rose at the sharpest pace in the survey’s five-year history.

The downturn in Egypt’s non-oil private sector was also reflected by firms’ purchasing activity. Input buying fell to the greatest extent in 31 months, leading to a survey-record decline in pre-production inventories.

On the price front, March data highlighted the impact of currency devaluation relative to the US dollar. Total input costs increased sharply, in line with a marked rise in purchase prices. Charges rose as a result, with firms reporting that higher costs far outweighed discounts offered in an effort to secure new clients. Moreover, the respective rates of inflation were the sharpest since April 2013. – TradeArabia News Service




Tags: | Egypt | Emirates NBD | Non-oil business |

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