Egypt Business Activity Expands In August, Hits 8-Month High –PMI

Business activity in Egypt grew at its sharpest rate in eight months in August, a survey showed on Wednesday, as the economy rebounded strongly from the initial shock of cuts in energy subsidies last month.

Egypt’s economy has been hit by more than three years of political and economic turmoil following the 2011 uprising that toppled Hosni Mubarak after 30 years in power.

The government is walking a fine line in an attempt to boost revenues and cut its deficit while luring investors. Increased output and a sharp rise in new orders last month, however, appeared to suggest that confidence was beginning to return.

The HSBC Egypt Purchasing Managers Index (PMI) for the non-oil private sector stood at 51.6 points in August, its most marked improvement since December 2013. Purchasing activity overall increased at the fastest pace since data collection began in April 2011.

Readings above 50 indicate expansion, while those below 50 point to contraction.

“After last month’s setback, the strong scores for output and orders are encouraging,” said Simon Williams, Chief Economist for the Middle East at HSBC, commenting on the Egypt PMI survey.

“There are a lot of challenges ahead, but we remain optimistic that growth will gain pace in the last months of this year and into 2015.”

OUTPUT, NEW ORDERS GROW

Egypt raised fuel prices by up to 78 percent in July in a long-awaited step to cut energy subsidies and ease the burden on the government’s swelling budget deficit.

The cuts pushed up prices and hit business activity in July, but the government has said it expects the economy to grow by more than 3 percent in the current fiscal year ending next June, from an expected 2 percent for the last fiscal year.

Egypt is targeting economic growth of up to 5.8 percent in the next three years with the deficit staying at around 10 percent of gross domestic product (GDP).

The PMI survey of around 350 private-sector firms showed that output rebounded strongly in August, with the related subindex reaching 53.5 points, its most marked increase in eight months, after shrinking to 48.7 points in July.

The subindex for new orders also hit an eight-month high, reaching 52.8 points in August, compared to 48.5 the previous month. New export orders expanded to reach 52.5 points in August, compared with 49.1 points in July, with clients naming European and Middle Eastern markets as sources of growth.

More jobs were shed in Egypt in August, however, with employment resuming the decline observed at Egypt’s non-oil private sector firms since May 2012 after a short-lived expansion in July. But the rate of decline was marginal.

Input prices rose sharply, with the index at 63.8 points, squeezing company margins, though the pace of the increase was less marked than the previous month when the index was at 67.8 points.

Higher input prices fed into higher selling prices in August. Output prices rose, with that subindex at 51.7 points, its sharpest rise since May 2013.

Source: Reuters