Abu Dhabi, UAEThursday 17 October 2019

Egypt's private sector contraction eases in September

Despite softening demand, the labour market remained strong, marking the fastest rate of employment growth for 13 months, IHS Markit says

Felucca sail boats sail down the Nile River in central Cairo. AFP
Felucca sail boats sail down the Nile River in central Cairo. AFP

Egypt's non-oil private sector activity rose marginally in September but remained in contraction mode for the second month in a row as output and new business orders fell, according to a report on Thursday.

The IHS Markit Egypt Purchasing Managers' Index, which measures the health of the non-oil sector, edged up to 49.5 last month from 49.4 in August, a reading that is above the monthly average but remains below the 50-mark that distinguishes between expansion from contraction.

The reading was "only a marginal deterioration in business conditions," David Owen, economist at IHS Markit, said. "Output and new orders were again reduced, although output fell at a weaker pace than in the previous month."

Egypt's non-oil private sector grew twice in the last 12 months, rising above the 50-mark in July and April.

Egypt, the Middle East's fastest-growing economy, is nearing the end of a three-year programme backed by the International Monetary Fund with a $12 billion (Dh44bn) loan to enact wide-ranging economic reforms. The steps helped end a major dollar shortage, repaired overburdened finances and pulled the country out of economic crisis, although Egyptians have felt the burden of austerity measures.

Egyptian firms' output dropped in September for the second consecutive month, though at a softer pace than in August, as they pared down activity due to fewer new orders.

"The fall in new orders was mainly domestic, with panelists reporting a third consecutive increase in foreign sales, albeit one that was softer than in August," Mr Owen said.

Total new business declined in September for the second month in a row, as firms reported "poor economic conditions," according to the survey.

Despite the softening demand, employment at Egyptian companies picked up in September, marking the fastest rate of employment growth for 13 months. Firms generally linked this to the need for additional labour. The pick up in employment marks the second consecutive month of private sector job growth. Panelists expect activity to improve over the next 12 months.

In a note Moody's Investors Service following Egypt's central bank to cut interest rates was credit positive for lenders and that lower interest rates and inflation will encourage capital spending by businesses that have been holding back on such investments, supporting consumer spending through enhanced debt affordability and government finances through a reduced interest bill, Moody’s. “Collectively, these developments will stimulate economic growth,” the agency said.

Updated: October 3, 2019 12:41 PM

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