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Monday, 6 March 2017

Investors assessing Egypt positively, PMI at its highest since August but still declining

Investors are again assessing Egypt’s prospects positively, John Sfakianakis writes for Bloomberg. By floating the EGP and securing financing from the IMF, “Egypt made the right decision,” he says. Sfakianakis notes the recent appreciation of the EGP “has been faster than most expected, pointing to a more balanced and efficient market” and “external flows are helping instill stability in the foreign exchange market.” He expects exports and tourism to get a boost from the cheaper currency but is concerned about the inflationary effects as well as the increases in cost of capital following the CBE rate hikes. Manufacturing will also be a key source for job creation and Sfakianakis says a shift towards more local content will reduce reliance on intermediate imports, “produce better-paying jobs and develop a sustainable production chain.”

Sfakianakis’ report came despite business conditions for Egypt’s non-oil private sector continuing on a downward path in February, with the Emirates NBD PMI compiled by Markit registering 46.7. The silver lining in the report is that the contraction, while ongoing for the seventeenth month in a row, was the least severe since August and the PMI reading increased from 43.3 in January. Still, February’s downturn was led by sharp declines in both output and new work but with softening contraction rates and the rate of job reduction was the slowest in a year. Emirates NBD Head of Research Tim Fox commented: “the headline index rose to its highest level in six months. New export orders were only marginally lower than in January, signaling improving external demand, and the rate of decline in output was slower last month. Inflationary pressures remain high, but the rate of input price inflation eased markedly in February. Overall, there are signs of stabilization in the non-oil private sector.” Overall, the report notes that “the degree of optimism among Egyptian firms improved to an eight-month high. Companies expect market conditions to improve, thereby boosting output over the coming year.”

… Bloomberg’s Ahmed Feteha says the PMI reading is a sign that the economy may be recovering, pointing to the new orders sub-index rising to 44 from 39.2. The reading suggests “that the recent devaluation of the Egyptian pound is already having a positive impact on external demand, and this should continue to improve in the coming months.”

On that, the Trade and Industry Ministry announced that Egypt’s trade deficit fell by 44% y-o-y in January to USD 1.96 bn. Ahram Online notes that non-petroleum exports increased by 25% in January to USD 1.6 bn from USD 1.32 bn a year earlier, while imports decreased by 25% from USD 4.82 bn to USD 3.62 bn.

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