Egypt PMI slips in March as inflationary pressure crimps demand

Egypt’s private sector economy contracted in March as inflationary pressures continued to weigh on demand in the Arab world’s most populous country, still reeling from the impact of a steep devaluation of its currency in November 2016, according to a latest survey.

There are still some bright spots for the non-oil economic growth in the North Africa's biggest economy as new export orders improved for the third straight month and average cost burdens rose at the slowest rate in 30 months.

Emirates NBD’s Egypt Purchasing Managers’ Index slipped to 49.2 in March from 49.7 in February. A reading above 50 in the PMI – a composite indicator designed to give an overview of operating conditions in the non-oil private sector economy –suggests growth, while a reading below 50 suggests a contraction. The survey is sponsored by Dubai's biggest lender, Emirates NBD, and produced by IHS Market.

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“While we still anticipate an improvement in the Egyptian economy this year as the negative effects of its IMF-sponsored reforms pass through, the latest PMI data implies that this is taking longer that the authorities might have hoped,” said Daniel Richards, Middle East and North Africa economist at Emirates NBD.

“Nevertheless, the index has consistently threatened to turn expansionary over recent readings, which is a vast improvement on the months just prior to the economic reforms.”

Inflation in Egypt rose as high as 35 per cent following Egypt's move to devalue its currency. The impact was compounded by a reduction in energy subsidies, together with a looser monetary policy, which were required for the country to tap a $12 billion loan from the IMF amid its most serious economic crisis in modern times.

Egypt’s rate of inflation has been dropping this year and in February fell to 14.4 per cent from 17.1 per cent in January, according to the latest figures. Finance Minister Amr El Garhy told Reuters in January that inflation is forecast to fall to 10-12 per cent by the end of the 2018 and drop below 10 per cent in 2019.

Economists have been encouraged by steps the government has taken to put the economy on a sustainable path of growth, following years of decline in the wake of political chaos that has seen two uprisings that ended with the removal of two presidents.
Despite the decline in the non-oil business activity, March's reading for Egypt's PMI remained above its historical average.