Egypt’s business activity rises for 2nd straight month in August

Business Bureau, Gulf Today

August PMI data signalled growth in activity and demand in Egypt’s non-oil economy for the second month in a row. Output prices rose for the first time in ten months amid a further increase in input prices.

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 - posted at 49.4 in August, down fractionally from 49.6 in July.

The latest reading signalled a deterioration in operating conditions, one that was faster than in the previous month but still only marginal.

Importantly, the headline index has risen nearly 20 points from its nadir in April at the height of the coronavirus disease 2019 (COVID-19) pandemic, suggesting that the downturn has slowed markedly.

Egyptian non-oil companies saw further increases in both output and new orders during August, building on theinitial recovery seen in July. Higher activity was registered as businesses saw a pick up in new orders and contract requests, although the rate of expansion was mild and softer than in the previous month.

Notably, some firms commented that sales remained weak as demand was slow to return to pre-COVID levels, suggesting that momentum toward an economic recovery was subdued.

On a positive note, demand from foreign customers increased in August and at the quickest pace in nearly three years. This was partly due to the reopening of tourist sites which spurred increased travel to Egypt, while firms also mentioned a rise in export contracts.

Employment continued to fall across the non-oil private sector economy in August, with the sub-component acting as the main drag on the headline index. Jobs were reduced as companies found that workloads remained relatively low. This marked the tenth successive monthly drop in employment, and one that was solid overall.

As workforces were lowered, delays to raw material imports and liquidity problems at some firms led to a fourth successive rise in outstanding work. Companies also reported a shortening of overall lead times, but one that was only slight.

Meanwhile, higher purchase prices for medical equipment and disinfectants were among the drivers of a rise in overall input costs in August. The rate of inflation dipped from July’s recent high, but was nonetheless solid. Wage costs increased at the quickest pace for six months, albeit still only mildly.

Firms responded to higher cost pressures with an uptick in average charges that was the first recorded since October 2019.

Lastly, sentiment regarding output in the coming 12 months fell considerably from July’s 29-month high, and to the lowest since May. Nevertheless, a much higher proportion of firms expect activity to improve than decline, linked to hopes of a weaker impact of the pandemic on economic activity.

Commenting on the latest survey results, David Owen, Economist at IHS Markit, said: “Higher private sector activity in Egypt was registered for the second month running in August, according to the latest PMI survey data. That said, the Output Index signalled just marginal growth that was also slightly weaker than in July. This suggests that many firms are still finding business conditions tough, despite the relaxation of many COVID-19 related restrictions.

“Consumer demand remains weak, with new business picking up at only tentative rates in both July and August. As a result, employment levels were not sustained, with firms reporting a strong cut to workforce numbers. “Firms were, meanwhile, less certain about the economic outlook in August, with sentiment dipping to a three-month low. Amid this uncertainty, companies chose to lower purchases further, while input costs rose for the third consecutive month and led to a renewed rise in output charges.” The IHS Markit Egypt PMI(r) 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.

The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease. The indices are then seasonally adjusted.