Egypt’s non-oil business activity improved for the first time since July 2019. This indicator is considered an important economic measure, as companies, investors, and financial institutions rely on it to recognize the country’s degree of economic activity, particularly in the non-oil-producing private sector, as Egypt’s Minister of Planning and Economic Development Hala El-Said said.
What is the Purchasing Manager’s Index?
The headline seasonally adjusted IHS Markit Egypt PMI is an indicator of economic health for the non-oil private sector. Egypt’s Purchasing Managers’ Index (PMI) is derived from a survey of 450 companies, including manufacturing, services, construction and retail.
According to Investopedia, the PMI is a number from 0 to 100. A PMI above 50 represents an expansion when compared with the previous month. A PMI reading under 50 represents a contraction, and a reading at 50 indicates no change.
PMI = (P1 * 1) + (P2 * 0.5) + (P3 * 0) Where: P1 = percentage of answers reporting an improvement P2 = percentage of answers reporting no change P3 = percentage of answers reporting a deterioration
Egypt’s Purchasing Managers’ Index (PMI)
According to IHS Markit, Egypt’s non-oil private sector PMI rose to 50.4 in September 2020 compared to 49.4 in August 2020. Although the latest reading only posts a marginal improvement, it marked the first monthly expansion since July 2019.
WHY Did Egypt’s non-oil business conditions Improve?
Over the past couple of months, the government has been easing its covid-19 restrictions. This supported the growth of the private sector which experienced a significant increase in new orders and export sales. Employment also fell at the slowest rate in ten months. It is also worth noting that sentiment also improved in the GCC, where Saudi Arabia and the UAE also recorded higher PMI figures.
“This suggests the non-oil economy is seeing a modest turnaround after the devastating impact of the COVID-19 pandemic. Both the Output and New Orders series have been in expansion territory for three months, pointing to a more upbeat picture for the third quarter of 2020.David Owen, Economist at IHS Markit
How Does the PMI Affect Economic Decisions?
Manufacturing, while not the largest part of modern economies, is still considered a key indicator that forecasts economic expansion and contraction. Unlike the GDP figures and unemployment rates, the PMI is a leading economic indicator. As a result, most companies use the PMI figures to plan for their annual budgets, manage inventory or forecast cash flows among others. For example, an automobile manufacturer, which makes production decisions based on the new orders it expects from customers in the coming months, will use the PMI to estimate the amount of future demand for its products.