Egypt non-oil sector slows

BLOOMBERG

The downturn in Egypt’s non-oil private sector showed few signs of abating midway through 2016. Business conditions worsened for the ninth straight month, driven by ongoing declines in output, new orders and employment. The recent Egyptair incident was reported to have depressed tourism, contributing to another marked reduction in new business from abroad. Panellists mentioned higher prices as a factor restricting demand. Input costs rose at a survey-record pace, while the rate of charge inflation was also sharp. Continuing the recent trend, both were linked to the weakness of the Egyptian pound against the US dollar.
This was reflected in a survey,
sponsored by Emirates NBD and produced by Markit.
Commenting on the Emirates NBD Egypt PMITM, Jean-Paul Pigat, Senior Economist at Emirates NBD, said: “June’s survey suggests the Egyptian economy continued to slow at the end of FY2015/16, with the tourism sector appearing particularly weak. As we start the new fiscal year in July, hopes for a stronger recovery will depend in large part on whether a solution to the ongoing FX liquidity crunch can be found in the near term.”
At 47.5, the headline 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 – was little-changed from May’s 47.6 in June. The non-oil private sector downturn now stretches to nine months, though the rate of contraction has eased slightly over the second quarter. The Q2 average of 47.3 was marginally higher than those seen in the Q1 2016 (46.9) and Q4 2015 (46.8).
The deterioration in business conditions was driven in part by further declines in output and new work during June. Both fell simultaneously for the ninth month in a row, with the respective rates of contraction accelerating since May. According to panellists, activity dropped in the face of weak client demand both domestically and abroad.
Specifically, some firms referred to a downturn in the tourism industry on the back of a second air incident since last October. Along with ongoing uncertainty regarding the exchange rate, this contributed to a robust decline in new export work.
Sharp inflation was also mentioned by respondents as a factor behind the fall in total new business. Purchasing costs rose at the fastest pace in the series history, and charges increased markedly as a result. Anecdotal evidence pointed to the impact of currency weakness, particularly relative to the US dollar.
A lack of incoming new work was mirrored by lower purchasing activity in June. The latest fall was the ninth in as many months and solid overall. Input stocks also dropped sharply, as companies indicated that their inventory levels were more than sufficient to cope with the subdued level of demand.
Meanwhile, non-oil private sector
employment in Egypt continued to
fall, marking a 13-month period of
staff cuts. The rate of job shedding
was robust overall, albeit the weakest since February.