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Daniel Richards - MENA Economist
Published Date: 03 May 2018
The Emirates NBD Purchasing Managers’ Index for Egypt rose to a positive 50.1 in April, just above the neutral 50.0 mark which delineates contraction and expansion in the non-oil private sector. This marks an improvement on the 49.2 reading in March, and is only the second time in 31 months that the index has read positively. This is in keeping with real GDP growth, the improvement in which has to now largely been driven by public investment and an external rebalancing. However, we anticipate that the PMI index will be more consistently positive over the coming quarters, as ongoing economic reforms and loosening monetary policy encourage greater private sector activity.
This outlook is supported by the data from the future-looking components of the survey. Although output remained at a neutral 50.0 in April, meaning that a strong recovery in present conditions is yet to take hold, new orders rose from 50.0 to 51.0, boding well for future surveys. Of all the components of the headline reading, new orders has staged the biggest recovery, having fallen to just 36.3 in November 2016, just as Egypt entered into its IMF-sponsored reform programme. Optimism over future conditions remains high at 72.6 as well. Although this has fallen from an average 79.0 over the previous two quarters, nearly half of all respondents (49.5%) expect output volume to be greater in 12 months’ time, compared to only 4.3% expecting a deterioration.
The positive effect of the currency devaluation enacted in November 2016 as part of the IMF reform programme can still be seen in new export orders, as the more competitive currency likely contributed to the fourth consecutive month of 50.0-plus readings in April. The effect of the devaluation has not been universally positive, as purchase prices have been elevated in the intervening months. However, this is starting to dissipate, with 59.7 in April the lowest reading since April 2015.
Source: IHS Markit, Emirates NBD Research
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