Dollar Squeeze Drags Egypt PMI to 26-Month Low as Saudi Improves

  • PMI drops to 45 in Nov. as output falls across private sector
  • Saudi PMI rose to 56.3, recovering from a six-year low

Egypt’s non-oil business activity in the private sector contracted for a third month in November as the shortage in foreign currency threatens to undermine the nascent recovery of North Africa’s largest economy.

The Emirates NBD Purchasing Managers Index fell to 45, the lowest since September 2013, down from 47.2 in October. Readings above 50 signal expansion, while those below indicate contraction. Saudi Arabia’s PMI rose to 56.3 in November after sliding to a six-year low of 55.7 in October.

“Once again, respondents are citing FX issues as a factor that is resulting in declining output across the private sector," said Jean-Paul Pigat, senior economist at Emirates NBD. Egypt’s economic recovery will partly depend on “authorities easing capital controls and allowing the” pound to weaken in 2016, he said.

November’s drop highlights the challenge facing Egypt’s new central bank governor Tarek Amer as he attempts to ease the dollar shortage amid a decline in tourism revenues and foreign investments. Under his predecessor, the central bank imposed curbs that included limits on dollar deposits. In his two weeks office, Amer cleared the long line of foreign investments trapped in the country, and promised to provide more dollars to the market.

Stocks Decline

Egypt’s benchmark EGX 30 Index for stocks have dropped 23 percent this year, making it the fifth-worst performer among global equity measures tracked by Bloomberg. Saudi Arabia’s Tadawl All Share Index has declined 14 percent.

The kingdom’s PMI gauge rise was driven by faster growth in new orders and new export orders.

The improvement "is encouraging, particularly against a backdrop of sustained low oil prices and an announced freeze in government spending” at the start of the fourth quarter, Khatija Haque, head of MENA research at Emirates NBD, said. The United Arab Emirates PMI also rose to 54.5 in November after falling to a 2-1/2 year-low of 54 in October.

The PMI measure is based on answers to a questionnaire from purchasing executives in about 450 private sector companies. It carries five sub-indexes measuring key indicators including output, new orders and employment.

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