Abu Dhabi, UAEThursday 1 October 2020

Egypt's non-oil economy shows signs of stabilisation as contraction slows

The headline PMI figures has jumped to 44.6 in June, which compares with 40.7 in May and a record low of 29.7 in April

The Cairo skyline. Egypt received a $639 million credit facility from the Arab Monetary Fund. Reuters
The Cairo skyline. Egypt received a $639 million credit facility from the Arab Monetary Fund. Reuters

The Egyptian non-oil private sector economy is beginning to show signs of recovery, helped by stability in new business as the most populous Arab nation slowly emerges from the Covid-19-induced slowdown.

The headline seasonally adjusted IHS Markit Egypt Purchasing Managers’ Index – a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – rose to 44.6 in June, the highest in four months. That compares with 40.7 in May and a record low of 29.7 in April at the height of the coronavirus pandemic in the country.

A reading above a neutral 50 level indicates economic expansion and below points to a contraction.

"June's PMI data gave some promising signs that the Egyptian economy is beginning to stabilise,” David Owen, an economist at IHS Markit, said. “The headline PMI … [is] signalling a further slowing in the downturn caused by the Covid-19 crisis that reached its worst level in April.”

In line with the headline figure, sub-indices for output and new orders also rose to four-month highs in June. Many firms reported a boost in business by the partial lifting of Covid-19-related restrictions, as working hours increased along with new contracts from clients.

Still, the overall activity across many sectors remained weak, largely due to restrictions on travel and tourism.

Despite softer contraction, the latest data shows that some firms laid off employees and others chose not to hire new workers to reduce staffing costs. Salaries were also adjusted, which lowered staff costs for the third month in a row.

"Employment numbers still fell at an accelerated rate in June, although multiple signals suggest this will soon change,” Mr Owen said. “Higher demand at some companies, increased backlogs and sentiment rising to a six-month high all point to firms hopefully restarting hiring in the near future.”

Firms also reported a softer reduction in purchasing activity in June, as the decline in new business also slowed. However, delivery times were again pressured by curfew hours and delays at port, lengthening for the fourth month in a row.

Prices paid for input goods meanwhile rose sharply, in part due to an increase in prices for medical materials and a rising US dollar value. The rate of inflation was the sharpest for nine months, leading to a renewed uptick in overall cost pressures at Egyptian firms.

Optimism for future business activity was also the highest seen in 2020 so far, as firms said the government is looking to relax Covid -19 restrictions even further. Businesses expect further relaxation to restore private sector demand and support a rise in jobs in the future.

Updated: July 6, 2020 09:53 AM

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