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Egypt's business activity falls in July as production drops :PMI

Egypt's business activity falls in July as production drops :PMI

Arab Finance: Latest data painted a bleak picture of Egypt’s non-oil private sector in July. Business conditions worsened amid declines in output, new orders and employment, although the respective rates of contraction were only slight. As a result, input buying fell for the first time in five months. Meanwhile, input costs continued to rise sharply, contributing to another marginal increase in charges. 

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

Commenting on the Emirates NBD Egypt PMITM, Jean-Paul Pigat, Senior Economist at Emirates NBD, said:

“The drop in July’s survey came in below expectations, and hence raises the possibility that Egypt’s macroeconomic recovery may have stalled at the start of FY2015/16. That said, assuming the two biggest factors that are undermining private sector business activity at the moment – security risks and FX liquidity shortages – improve in the coming months, we would be optimistic that growth momentum can accelerate in H2.”

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 – slipped below the neutral 50.0 mark to 49.2 in July. The latest figure signalled a return to contraction for Egypt’s non-oil private sector, following the first improvement of 2015 seen in the previous month (50.2). That said, it remained above the long-run series average, and pointed to only a fractional worsening in business conditions.

The fall in the headline index was partly driven by reductions in output and new orders during July. Although modest, the respective declines contrasted with expansions recorded in the previous month and over the second quarter on average. Concerns over security were reported to have dampened demand, leading firms to scale back production.

A lack of new export work also contributed to subdued demand conditions in July. New export business fell for the second time in the past three months, although the rate of contraction was only slight.

Payroll numbers at Egypt’s non-oil private sector firms decreased for the second straight month in July. The rate of job shedding was faster than in June and broadly in line with the historical average, albeit modest overall. According to panellists, workers left their posts to either search for better job opportunities or take up their pensions.

Meanwhile, purchasing activity declined for the first time since February, mirroring the trend observed for new work intakes. As a result, pre-production inventories were depleted further, as has been the case in every month so far this year.

On the price front, the weakness of the Egyptian pound continued to place upward pressure on purchasing costs in July, leading to another sharp rise in overall input prices. Moreover, data indicated that higher wages added to inflationary pressures, with the rate of salary growth picking up to a two-year high.

Finally, higher input costs led to further charge inflation in July. The latest rise in tariffs was only slight, however, and broadly similar to the average recorded since the survey began in April 2011. Some companies saw their pricing power diminish as they attempted to attract new clients. 

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