Egypt economy grows for the first time in 17 months

Business Bureau, Gulf Today

Egypt’s non-oil private sector economy saw renewed growth in April, according to latest PMI data. Output expanded for the first time in nearly one-and-a-half years and new business increased at a faster rate. Input purchasing and job numbers also rose, while business sentiment towards the year-ahead outlook for activity strengthened.

Summary The seasonally adjusted Emirates NBD Egypt Purchasing Managers’ Inded (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – rose from 49.9 in March to 50.8 in April, signalling the first improvement in overall business conditions since August 2018. Furthermore, the PMI reading was the highest observed in over three-and-a-half years.

Central to the improvement was an expansion in business activity at the start of the second quarter of the year. Despite being modest, the rise in output was the first seen since November 2017. Panellists primarily related this to greater market movement and an increase in demand.

Concurrently, new orders saw a slight rise, as many firms reported higher sales and the securing of new contracts. This followed a marginal increase in March. Foreign sales continued to decline, albeit at a softer rate.

Egyptian firms responded to favourable domestic demand by lifting input buying during April. In addition, employment levels grew for the first time in eight months. Backlogs saw only a slight increase, while lead times were broadly unchanged.

Output prices were still restrained in April, as the run of weak activity in recent months led some businesses to reduce selling charges to attract new customers. Overall selling prices have seen little change since last November, while input cost inflation remained weak. That said, cost burdens increased at a faster pace than in March, driven by higher fuel and electricity prices and a rise in living costs.

Regarding future output, Egyptian companies were more positive in April on the back of an improving picture for the private sector.

Some firms mentioned greater tourism and export markets as key reasons underpinning optimism. Output expectations were the second-strongest in 12 months.

Non-oil companies in Egypt expanded production levels during April for the first time since November 2017. Although slight, the rate of increase in output was the fastest in over three-and-a-half years. Where growth was noted, firms generally mentioned renewed market activity and strengthening demand.

April data sustained the recovery in new orders registered during March, with the respective seasonally adjusted index pointing to a second successive rise in demand. The increase was marginal, but the quickest for nine months. Firms that reported higher new business (close to 15 per cent) attributed this to new contracts and a revival in tourism. That said, some businesses continued to report fewer sales (12 per cent).

International demand for Egyptian non-oil private sector output fell slightly at the start of the second quarter, but the pace of decline was the least marked in four months. Some firms noted a lack of new foreign contracts and a shift in focus towards domestic sales. That said, others saw higher demand from new markets such as Italy, Turkey and Japan.

The resurgence in demand led to a rise in backlogs at Egyptian firms in April, following two successive monthly declines. Firms that saw a rise in outstanding business related this to poor liquidity. However, changes to backlog levels have been fractional since the beginning of the year, with most panellists recording no change.

Vendor performance was again broadly unchanged at the start of the second quarter of the year. The seasonally adjusted Suppliers’ Delivery Times Index edged up fractionally to post just below the 50.0 threshold that separates improvement from deterioration. In general, supply chains have been relatively settled since late-2018.

Non-oil private sector employment grew in April for the first time in eight months. That said, the rate of growth was fractional, with the respective seasonally adjusted index just above the 50.0 threshold. While some businesses highlighted the need for more staff in the face of increasing demand, others reported a fall in staffing due to retirements and people leaving for new companies.

Output prices across Egypt’s non-oil economy were broadly stable in April, as has been the case since last November. Due to declining sales in previous months, some respondents stated that they lowered prices in order to attract new customers and stimulate the market. At the same time, others increased charges due to higher costs.

The overall rate of input price inflation remained subdued in April, despite accelerating from March. The respective seasonally adjusted index recorded its second-lowest reading in the series history, which began eight years ago.