File Photo: Unions in Egypt (Photo: Al-Ahram)
Business activity in Egypt's non-oil private sector was contracted in October as the headline PMI fell to an 8-month low, according to the monthly Emirates NBD Purchasing Managers' Index published on Tuesday.
The PMI fell to an 8-month low of 47.2 in October, after adjusting for seasonality, down from 50.2 in September, and below the 50-point mark that separates growth from contraction, according to the report of the monthly survey produced by Markit Economics.
“October’s survey suggests that the Egyptian economy has slowed at the start of Q4 2015," said Jean-Paul Pigat, Senior Economist at Emirates NBD. "Some of the issues that appear to be undermining output in the private sector – including problems with power supplies and the availability of FX – highlight the need to implement a more concerted programme of structural reforms to boost the economy’s short and long-term outlook.”
The main issues underpinning the downturn were "marked contractions in output and new orders" during October amid reports of weaker-than-expected demand. "Data for new business... signalled the quickest fall since February," said the report, while "new export work showed a similar downward trend, with the latest decline the joint-fastest in 25 months."
"Non-oil private sector employment in Egypt also fell more quickly at the start of the fourth quarter. The rate of job shedding was the fastest in six months, albeit moderate overall," said the report.
Backlogs increased during the month. "There were reports of some delays in production, leading to a build-up of outstanding business."
"Overall, the PMI suggests that problems with persistent power outages and draconian restrictions on access to foreign currency continued to weigh heavily on activity," said Jason Tuvey, middle east economist at Capital Economics, in an emailed note on Tuesday.
President Abdel-Fattah El-Sisi said in a televised speech earlier this week that the natural gas shortages behind slowed industrial production would be solved in November.
The Central Bank of Egypt (CBE) has in recent months introduced measures to ration the country's dwindling foreign currency supply, with forex reserves at the CBE sinking to $16.3 in September, barely enough to cover three months' worth of the country's strategic imports.
Input costs for businesses rose sharply due to the "steepest rise in purchase prices since March," as those surveyed pointed to the weakness of the Egyptian pound against the US dollar and reports of further depreciation as the main culprit.
Egypt's pound has depreciated by close to 11 percent since January. The official exchange rate, after the latest round of devaluation conducted by the Central Bank last month, is LE7.93 per US dollar, though the dollar changed hands at LE8.50 on the black market on Tuesday, according to a trader surveyed by Reuters.
"Higher costs had little impact on output charges, however, as data signalled a second successive reduction in tariffs" said the PMI survey, as companies attempted to secure new clients. "According to panel members, some discounts were offered in an effort to attract new customers."
Egypt's main stock index inched down by 0.02 percent to close at 7,433 points on Tuesday after rising early in the trading session.