Egypt's private sector activity contracted again in May as output and new orders declined with companies expected to remain under pressure in the summer before outlook improves, a survey showed.
The Emirates NBD Purchasing Managers' Index, an indicator of the non-oil private sector's health, fell in May to 48.2 from 50.8 in April – dropping below the 50 mark that signals growth in business activity, the lender said on Monday. The drop signaled a moderate deterioration in the health of the sector, ending growth in April for the first time in eight months.
“The dip back below 50 was driven by both output and new orders, both of which saw moderate declines compared to the previous month, following expansions in April," Daniel Richards, Mena Economist at Emirates NBD, said on Monday. "New export orders contracted at a quicker pace, with respondents citing a deterioration in tourism activity."
Egypt has been implementing tough economic reforms as part of a three-year $12 billion loan agreed with the IMF, starting in November 2016. The measures included flotation of the exchange rate, energy subsidy cuts and fiscal consolidation. S&P Global Ratings maintained Egypt's credit rating at "B", five levels below investment grade, with a stable outlook, reflecting the country's economic growth prospects.
Output declined modestly in May because of falling sales amid low client turnout.
Egyptian companies reported a moderate slip in total new orders, with anecdotal evidence pointing to stagnant market conditions that led to weaker sales volume.
Decline in new export orders extended to nine months, with businesses citing a lack of foreign contracts.
New subsidy reforms are expected to raise energy and fuel tariffs, further squeezing margins of companies, according to the survey.
"The private sector has continued to bear the brunt of ongoing reform economic efforts in Egypt, and will likely remain under pressure over the summer period," Mr Richards said. "Upcoming subsidy reforms and a renewed pause in the Central Bank of Egypt's [rate] cutting cycle means that conditions remain difficult for private firms."
Conditions are expected to improve after the summer months as stronger economic growth bolsters demand and companies leave the more difficult economic reforms behind them this November, Mr Richards said.
Companies shared the optimistic outlook, with 38 per cent expecting an increase in activity this year on the back of new business opportunities.
