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Egypt's non-oil business sector contracts slightly in March - Daily News Egypt

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Egypt’s non-oil business sector contracts slightly in March

Improvements in new export orders for third consecutive month, backed by weaker currency

Egypt’s non-oil private sector activity continued to shrink in March to reach 49.2 down from 49.7 in February, amid easing inflationary pressures, with both input prices and output charges increasing at softer rates, according to the latest Emirates NBD Egypt Purchasing Managers’ Index (PMI) survey published on Tuesday.

According to the survey, improvement in the Egyptian economy in 2018 is anticipated, as the negative effects of economic reforms start to fade.

The forecasted improvement is backed by the slowdown in inflation as the effects of the November 2016 currency devaluation has declined. Headline CPI inflation has more than halved since its peak of 33.0% year-over-year in July 2017, and this has been reflected in the PMI data, with the input price component falling to 61.0, its lowest level since September 2015, the report states.

Moreover, the fall in input purchase costs, from 71.0 12 months ago to 61.2 in March, is a major positive for firms that have struggled to pass all of their greater costs incurred onto customers, thereby squeezing their margins and their ability to invest.

On the other hand, the latest data signalled an improvement in new export orders for the third consecutive month. New export orders have exceeded 50.0 in 2018 so far, coming in at 51.4 in March. Meanwhile, the new orders overall were at 50.0 in March, down from 50.3 in February, but far above their 12-month average of 48.6.

According to the report, such improvement is due to the positive impact of a weaker currency following the November 2016 devaluation.

In regard to output, non-oil private sector companies continued to report a decline in it. However, the rate of contraction in business activity eased since February and was marginal overall.

According to the survey, the ongoing job shedding trend since June 2015 continued in March, along with rising staff costs.

On the other hand, non-oil private sector companies witnessed improvement in supplier deliveries in March, following a five-month sequence of vendor performance deterioration.

Although the sentiment toward business growth remained positive, the degree of optimism is moderating. Only 43.7% of the NBD survey respondents expect that output will be greater in 12 months’ time, down from 70% in December 2017.

However, only 3% expect worsening business conditions, while more than half of respondents now believing that the rebound has run its course and output will remain at current levels. The subcomponent index reading was 70.3 in March, down from 80.0 the previous month and a 12-month average of 76.9.

That said, the March PMI figure remained above its historical average, despite signalling a deterioration in business conditions. “Nevertheless, the index has consistently threatened to turn expansionary over recent readings, which is a vast improvement on the months just prior to the economic reforms,” according to the report author, Daniel Marc Richards, NBD’s Middle East and North Africa economist.

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