Egypt’s output, new orders fall at softer rates than last month

Business Bureau, Gulf Today

Egypt’s output and new orders fall at softer rates in May while compared to April’s records.

The headline seasonally adjusted IHS Markit Egypt Purchasing Managers’ Index (PMI) - a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy - rose from 29.7 in April (a record low) to 40.7 in May, indicating a softer deterioration in business conditions.

Businesses were generally hopeful that the eventual passing of the COVID-19 crisis could lead to a rebound in the market.

On the positive side, deliveries made to Egyptian companies were only slightly slower in May, following sharper deteriorations in vendor performance during March and April as supply chains struggled to cope with the pandemic.

The outlook for activity in 12 months’ time weakened from April, although it remained higher than March’s recent low. Purchase prices increased only slightly in the latest survey period, with firms noting higher prices of medical supplies and food items, but lower prices of plastic and other raw materials.

Output charges dropped for the seventh month in a row, linked to firms offering discounts in order to support a recovery in sales.

Output levels continued to contract midway through the second quarter, although the rate of decline eased considerably from April when businesses were widely closed due to the COVID-19 pandemic.

Many firms remained shut in May or operated at reduced activity, but some were able to reopen.

Companies finding that demand had stagnated amid the coronavirus crisis. However, the rate at which new orders fell was noticeably weaker compared to April.

Nevertheless, with sales struggling to rebound, Egyptian companies made further adjustments to jobs in May. Employment levels declined for the seventh month running and at the sharpest rate since January 2017.

Purchasing activity fell for the fifth consecutive month, as input requirements remained low amid weaker sales. Stock levels decreased at a faster rate, due to both lower purchases and the restarting of production at some companies.

Many firms expressed concerns that virus cases continued to rise, while also noting greater tensions between USA and China and the potential impact on exports.

The IHS Markit Egypt PMI is compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies.

The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. The sectors covered by the survey include manufacturing, construction, wholesale, retail and services.

Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month. A diffusion index is calculated for each survey variable.

The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses.