Egypt: The non-oil private sector remains in contractionary territory in June, but businesses remain confident
The Emirates NBD Egypt Purchasing Managers’ Index (PMI) increased to 49.4 in June from 49.2 in May. Therefore, the monthly print remained below the 50-threshold which separates contraction from expansion in the non-oil private sector for the 10th time in FY 2018, which ended in June.
The improved reading in June came on the back of softer declines in new orders and employment, which helped offset an accelerated output contraction. Falling output in June was likely due to weaker demand, according to businesses surveyed by Emirates NBD. As workloads in the non-oil private sector fell in June, headcounts were cut for the 37th consecutive month, although the rate of job-shedding slowed. Moreover, with firms noting a lack of liquidity, purchasing activity decreased in June.
On the price front, inflationary pressure for businesses moderated in June from May, but they remained persistent due to higher purchase prices and labor costs. On the back of inflation, firms increased output prices in June, although to a smaller extent than overall input prices, suggesting that some of the price burden was shared by businesses. Looking ahead, firms were confident that output would increase in the coming 12 months, particularly due to positive sentiment regarding future investment and orders.
Commenting on the PMI developments in recent months, Daniel Richards, MENA Economist at Emirates NBD, said:
“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 [Q3 FY 2018] and [Q4 FY 2018] make them the strongest quarters in years, and business optimism remains fairly upbeat.”