Egypt’s non-oil activity falls back into contraction in August – report

Egypt’s non-oil private-sector activity contracted in August after a marginal expansion the month before, a survey showed on Tuesday.

The IHS Markit Egypt Purchasing Managers’ Index (PMI) for the non-oil private sector fell to 49.4 in August from 50.3 in July, dipping below the 50.0 threshold that separates growth from contraction. That was roughly in line with 2019’s monthly average of 49.3.

Egypt’s non-oil private sector has seen growth in only two of the past 12 months, according to the PMI.

The August reading indicated that present operating conditions were subdued, mainly due to mild declines in output and new orders, the report said.

But despite the contraction, expectations for future growth were at an 18-month high.

“Business sentiment around future activity soared to the highest in one-and-a-half years in August, as more Egyptian firms expressed optimism for growth,” the report said.

Nearly 51 percent of respondents predicted increased activity over the next year, while 4 percent forecast a contraction.

Sub-indices for output and new orders, which account for over half the index’s weighting, also fell back into contraction after expanding slightly in July.

David Owen, economist at IHS Markit and the report’s author, said the overall decline was due to a drop in sales which, whilst down for the third time in four months, was the weakest fall seen in this period.

“Input costs rose at a heightened pace again due to recent subsidy reforms that caused a spike in fuel price,” he said. “The impact of these reforms should ease soon though, leading to lower rates of inflation, as underlying cost pressures appear mild.”

Egypt raised fuel prices in July by 16 percent-30 percent, the latest in a series of moves to reduce subsidies in line with its $12 billion loan agreement with the IMF.

But headline inflation hit its lowest in nearly four years in July, falling to 8.7 percent from 9.4 percent in June.

“Sentiment (among companies) has been subdued since the middle of 2018, but is starting to pick up now amid hopes of a recovery in growth,” Owen said.

“That said, concerns around current economic and employment conditions are still being highlighted by panellists as limiting business activity.”

Employment expanded for the first time since April, the PMI showed, though still at a marginal pace.

Egypt is targeting economic growth of six percent  within the financial year 2019/2020, which began in July, slightly more than the 5.6 percent targeted for the financial year 2018/2019.

Source: Reuters