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Reductions in output and new orders stress non-oil private sector: PMI - Daily News Egypt

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Reductions in output and new orders stress non-oil private sector: PMI

PMI posted below the crucial mark of 50.0 for the 16th month straight

Egypt’s non-oil private sector started 2017 in the same way it ended 2016, with economic conditions worsening again, according to Emirates NBD Egypt Purchasing Managers’ Index (PMI) survey report.

The PMI report stated that underpinning the downturn were ongoing reductions in output and new orders. “On the price front, greater cost pressures led firms to raise their average prices charged at the sharpest rate in the survey’s history to date,” the report read.

The report explained that concurrently firms were reluctant to take on additional staff, leading to employment rates dipping for the 20th straight month.

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

Jean-Paul Pigat, senior economist at Emirates NBD, said that January’s survey provides little evidence that an economic recovery is already underway at the start of 2017. “It is, however, encouraging that the new ‘Future Output Index’ of the PMI suggests that firms have become increasingly optimistic on the economic outlook following November’s devaluation of the Egyptian pound,” he added.

Emirates NBD Egypt PMI, a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy, posted below the crucial mark of 50.0 for the 16th month straight

Despite a rise from 42.8 in December to 43.3 at the start of 2017, the latest reading was consistent with a sharp deterioration in business conditions, according to the report.

It explained that the sub 50.0 PMI reading mainly reflected lower output and less new work during January, both dropping simultaneously for the 16th month in a row.

“Anecdotal evidence highlighted a generally inflated market and the ongoing economic downturn. Another factor leading total new work to fall was a marked contraction in new export work, which reportedly occurred due to security concerns across key markets in the Middle East,” the report read.

Moreover, it noted that at the same time data showed that a sharp rise in output charges contributed to the downturn in Egypt’s non-oil private sector output, with inflation reaching a record high. Additionally, upward pressures on selling prices reflected higher purchasing costs, with roughly 76% of the monitored companies noting an increase in January.

According to panellists, the weak exchange rate relative to the US dollar was reported to be the key factor behind another steep increase in input costs, although some firms also mentioned higher fuel costs as a factor. Moreover, average salaries rose in line with higher living costs.

In response to falling output requirements, Egyptian non-oil private sector companies reduced employment further in January, marking the 20th consecutive month of job losses. The rate of job reduction was among the highest in the survey history so far. Also, staff had either reportedly left their posts in search of better job opportunities or in order to retire, the report stated.

Meanwhile, raw material shortages, stemming from higher prices, led firms to reduce purchasing activity, which in turn resulted in another monthly drop in pre-production inventories.Additionally, the outstanding business increased at the start of the year, albeit only marginally after no change in backlogs in December.

Finally, the report pointed out that the average vendor performance worsened at a sharp pace in January, amid reports of raw material shortages.

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