PMI data released on Monday showed business conditions in Egypt’s non-oil private sector deteriorated in May, as has been the case throughout the past 20 months, but export orders rose at the fastest rate on record, suggesting that the sharp devaluation of the pound in November is having a positive impact on exports.
Emirates NBD Egypt Purchasing Managers’ Index recorded 47.3 in May, down 0.1 points on a monthly basis, remaining below the 50-mark for the 20th consecutive month, suggesting that economic activity remains subdued.
“The latest downturn was evident by marked reductions in output and new orders, though the respective rates of contraction eased to the second weakest in nine-months (behind April),” Emirates NBD said in a press release.
Commenting on the Egypt PMI survey, Khatija Haque, head of MENA research at Emirates NBD, said that Egypt’s private sector appears to be stabilising, with the PMI largely unchanged from April.
“Encouragingly, new export orders rose at the fastest rate on record in May, suggesting that the sharp devaluation of the pound in November is having a positive impact on exports,” she added.
According to Emirates NBD, the solid deterioration in business conditions was mirrored by a marked fall in output, although, the rate of contraction was broadly unchanged from April.
Respondents to Emirates NBD’s and MARKIT’s survey cited lower demand and unfavourable economic conditions.
In contrast, new exports rose at the fastest pace since the inception of the format in April 2011. Panelists linked the rise in new export work to increased demand from international markets.
Firms reduced payroll numbers again in May, extending the current period of contraction to two years. Moreover, the rate of job shedding quickened to a solid pace.
Non-oil private sector firms in Egypt commented on lower output requirements, as well as workers leaving to search for better job opportunities or to retire.
On the price front, the weakness of the Egyptian pound relative to the US dollar remained a key factor behind the inflation.
It was cited as the driver of higher purchasing costs, which in turn contributed to a sharp rise in overall input prices. Average staff costs also rose, albeit to a lesser extent than purchasing prices.
Consequently, output charges increased at a marked pace. The rate of inflation eased to the weakest in 15 months, however.
Commenting on the report, HSBC said that while the data strengthens their view that 2017 is unlikely to be the year of recovery, there are signs that the IMF-sponsored economic reform programme implemented last year is continuing to yield results.
“Although the activity markers remain weak, each is above its rolling 12m average. While overall new orders are down, export orders rose strongly to hit a series high, suggesting that the sharp devaluation of the currency has started to yield returns,” Simon Williams, head of research at HSBC, wrote in a note.
HSBC expected inflationary pressures to ease in the next monthly read due on 8 June.
“We expect price growth to print below 30% y-o-y when the next inflation report is released on 8 June and look for interest rates to remain on hold for the remainder of this year,” the research note expected.