Egypt non-oil economy sees signs of stability in July

August 9, 2017 1:00 pm


The downturn in the overall health of the Egypt’s non-oil private sector eased in July, with the latest deterioration in business conditions marking the weakest in a year, according to new survey.

The Emirates NBD Egypt Purchasing Managers Index (PMI) reveals that new orders stabilised during July, ending a 21-month sequence of decline.

Output down, staff cuts

Output declined at the slowest pace in 12 months, thereby leading to only a marginal fall in input buying.

In response to lower output requirements, firms reduced their staffing levels during the month.

New export orders rose for the fourth consecutive month, but only marginally during July. Meanwhile, firms saw a sharp pick-up in input cost inflation.

Inflation likely to remain elevated

“Egypt’s economy appears to be stabilising, with new orders unchanged in July following nearly two years of contraction.  However, firms saw input costs rise sharply on the back of higher fuel costs as subsidies were cut further at the end of June. Inflationary pressure is likely to remain elevated as higher electricity tariffs came into effect this month,” says Khatija Haque, Head of MENA Research at Emirates NBD.

The headline PMI rose to 48.6 at the start of the third quarter from 47.2 in June. A 50.0 mark on the index separates growth from contraction.

Modest overall

The latest deterioration was the second-weakest since the contraction in business conditions started in October 2015 and was modest overall. Moreover, the headline PMI was slightly above the long-run average.

5 to 6 per cent growth

UBS Wealth Management, meanwhile, projects that Egypt’s economic growth could accelerate to five to six per cent per year.

A new report launched by UBS’ Chief Investment Office (CIO) on Africa’s sovereign credit prospects, which evaluates the risk of investing in a country, finds that after years of deterioration, the credit outlook of many African sovereign issuers, including Egypt’s, is stabilising or improving.

“From a longer-term perspective, the report indicates that the growth potential of Egypt and many African countries continues to be substantial, supported by drivers such as population growth, urbanization, and a rising middle class. Egypt’s efforts to improve the nation’s business environment and enhance the credibility of its economic policy will prove decisive for its sovereign credit profile,” says Ali Janoudi, Head of Central and Eastern Europe, Middle East and Africa, France and Belgium International at UBS Wealth Management.

The report assigns a stable credit outlook to Egypt.

Population growth

Over the next five years, the country’s population is expected to increase by more than ten million according to the UN, which is likely to become a sound driver of economic growth if the right conditions are met.

Current reforms and a buoyant global backdrop support the economy. Risks include the country’s chronic high youth unemployment rate.

”We believe the Egyptian economy can sustainably expand at an annual growth rate of five to six percent. However, further reform progress is crucial and access to foreign funds is a key element in this process. Despite recent progress, including a successful IMF program as well as the issuance of new Eurobonds, more work needs to be done to unleash the country’s full potential,” says Michael Bolliger, Head of Emerging Market Asset Allocation at UBS Wealth Management’s CIO.

 

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By Mujeeb Rahman
Journalist
Mujeeb Rahman is a business journalist at AMEinfo. His areas of focus include economy, markets, politics and international relations in MENA and Asia-Pacific regions. An ex-BBC digital journalist, he delves deeper into the subjects that matter most.



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