Tuesday 03, July 2018 by Jessica Combes

Egyptian non-oil private sector closer to stabilisation

 

New orders and employment both contracted at softer rates, offsetting the accelerated reduction in output

In fact, staffing levels fell at the slowest rate since June 2015. Inflationary pressures meanwhile continued to build as overall input costs rose further. As a result, output prices increased at an accelerated pace. 

The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the Egyptian private sector. 

“The June contraction shown by the PMI was marginally slighter than that in May, but the failure to consistently post above the 50.0 mark reflects the fact that Egypt’s economic recovery has to now been achieved primarily through external rebalancing and government investment, and that the private sector continues to lag. That is not to say that there has been no improvement, however; the average PMI reading of 49.6 recorded in both Q1 and Q2 make them the strongest quarters in years, and business optimism remains fairly upbeat,” said Daniel Richards, MENA Economist at Emirates NBD.  

The seasonally adjusted Emirates NBD Egypt Purchasing Managers’ Index (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – rose to 49.4 during June, from 49.2 in May, signalling a deterioration in the health of the non-oil private sector. That said, despite remaining in contraction territory, the latest figure was consistent with only a marginal decline that was softer than in the prior survey period.  

A modest fall in output contributed to the overall decline in business conditions at the end of the second quarter. Anecdotal evidence suggested that weaker demand was partially responsible for the contraction in business activity. A subsequent reduction in new orders was noted in tandem with lower levels of new export business. However, both total new orders and export orders decreased to lesser extents than observed in May. 

As volumes of new business fell, non-oil private sector companies reported a further decline in staffing levels during June. However, job shedding was only fractional, softening from the prior survey period to the second-slowest pace observed in the current 37-month sequence of contraction.  

Purchasing activity meanwhile slipped into contraction territory in June, with firms mentioning a lack of liquidity. However, the rate of reduction was only marginal. Furthermore, stocks of purchases continued to decline, though to a lesser extent than that observed mid-quarter. 

Elsewhere, firms continued to report inflationary pressures during June. Both purchase prices and staff costs underpinned the increase in overall input charges as raw material prices and living costs rose. The rate of inflation remained relatively weak, despite accelerating slightly from May. 

In response to rising cost burdens, firms increased their average selling prices during June. However, survey evidence indicated that firms partially absorbed higher input prices as overall costs rose at a stronger rate than output charges. 

Meanwhile, businesses remained confident that output would grow over the coming year. Furthermore, the degree of optimism strengthened from May, underpinned by expectations of further investments and new contracts.

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