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Overall deterioration in business conditions is strongest since July 2013: Emirates NBD-Egypt - Daily News Egypt

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Overall deterioration in business conditions is strongest since July 2013: Emirates NBD-Egypt

High prices continue to drive downturn in non-oil private sector

The downturn in Egypt’s non-oil private sector continued to gather speed in November, according to a research report prepared by Emirates NBD.

“The rate of deterioration in business conditions has quickened in each of the past four months,” the note stated.

The report found that firms are lowering output substantially amid mounting cost pressures and that new orders are also falling sharply as costs are passed on to clients, concluding that an overall deterioration in business conditions has occurred and is its strongest since July 2013.

It explained that substantial cost pressures stemming from currency weakness, particularly against the US dollar, were reported to have had a severe impact on operations. Raw materials were reported to have become largely unaffordable and in short supply, contributing to further sharp falls in output and purchasing.

Meanwhile, with a number of firms passing on higher costs, new orders also dropped markedly. As a result, some companies cut back on staff numbers in an effort to control costs.

Jean-Paul Pigat, senior economist at Emirates NBD, said the ongoing downtrend evident in November’s survey highlights that there will be no quick fixes to Egypt’s economic difficulties, even following the pound’s devaluation earlier this month. He added that it is crucial that authorities remain committed to their International Monetary Fund (IMF)-supported economic reform programme in order to anchor investor confidence.

The 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—edged down from 42.0 in October to 41.8 in November, its lowest reading since July 2013.

The report also stated that the steep inflation remained a key factor behind the downturn in November. Total input costs rose at a survey-record pace, driven by sharper increases in both salaries and purchase costs. On the back of a record rise in costs, the rate of charge inflation also reached a series high.

“With Egypt’s non-oil private sector in the midst of a downturn, rising inflation exacerbated existing difficulties at monitored firms. Both output and new orders dropped markedly, with the latter falling at the fastest rate in 39 months. Clients were reportedly reluctant to commit to orders amid high prices. Output was also affected by inflation, as well as subdued demand, with a number of panellists unable to purchase costly raw materials,” it added.

Furthermore, Emirates NBD said strong cost pressures prevented companies from rectifying material shortages through input buying, while in order to curb rising costs, the rate of job shedding was faster than in October and robust overall.

It pointed out that uncertainty surrounding the exchange rate contributed to another fall in new export work, according to respondents.


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