Why is Egypt’s non-oil business going from bad to worse?

July 6, 2017 11:51 am


The latest survey data indicated that business conditions in Egypt’s non-oil private sector continued to deteriorate during June, but at a modest pace that was broadly in line with the trend observed throughout the second quarter of 2017.

The overall contraction was mainly driven by marked falls in output and new orders, although the latter recorded the joint weakest decline in the past ten months. Growth in new export orders continued for the third month in succession amid reports of greater interest from international markets. Currency weakness led to further input price pressures, and firms raised average selling prices but at the slowest pace in 16 months, the survey by Emirates NBD revealed.

Commenting on the Egypt PMI survey, Khatija Haque, Head of MENA Research at Emirates NBD, said: “While the Egyptian economy remains under pressure, there are further signs of stabilization as export orders rose for the third straight month in June and selling price inflation eased slightly.  However, firms continued to cite weak domestic demand conditions as weighing on activity and new order growth.”

3 key findings

1. Headline PMI Index registers 47.2 in June, broadly similar to the prior month

2. Contractions of output and new orders, but export sales rise again

3. Output price inflation eases to a 16-month low

At 47.2 in June, the headline seasonally adjusted Emirates NBD Egypt Purchasing Managers’ Index (PMI) – which gives an accurate overview of operating conditions in the non-oil private sector economy – was broadly unchanged from 47.3 in May. The latest index reading signalled a solid deterioration in the overall health of the sector. However, the PMI average for the second quarter of 2017 (47.3) was the highest since Q3 2016 and considerably better than those seen around the turn of 2017. The 50.0 mark on the PMI separates growth from contraction.

The overall downturn in the non-oil private sector was led by a sharp fall in output, although the rate of contraction was only slightly below April’s nine-month low.  Panellists linked the fall in business activity to weak underlying demand conditions.

New orders contracted at a marked pace, but at the joint weakest in the past ten months. Unfavourable economic conditions and high prices continued to weigh on domestic demand, according to anecdotal evidence.

New exports rose for the third successive month in June amid reports of new contract wins from overseas markets.

Firms continued to cut payroll numbers in June, although the rate of job shedding eased from the prior month and was only modest.

The non-oil private sector saw a renewed contraction in purchasing activity. Subsequently, input stocks fell sharply, as firms continued to draw on existing stocks amid reports of high raw material prices.

On the price front, sharp input price pressures were predominantly driven by currency weakness relative to the US dollar, although the rate of inflation was the second-weakest in 16 months. A sharp rise in output charges was observed in June, although the rate of inflation eased to the weakest in 16 months. Firms signalled the passing on of higher cost burdens to clients where possible.

Firms remained optimistic regarding business prospects over the coming year. Respondents commented on hopes of stability in currency markets and economic conditions, alongside projections of new contracts as the key reasons behind business confidence.

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By AMEinfo Staff
AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.



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