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Reading: Egypt’s non-oil private sector contraction slows down: PMI
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Dailynewsegypt > Blog > Business > Egypt’s non-oil private sector contraction slows down: PMI
Business

Egypt’s non-oil private sector contraction slows down: PMI

Daily News Egypt
Last updated: 2023/06/05 at 11:27 PM
By Daily News Egypt 5 Min Read
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Egypt's non-oil private sector contraction slows down: PMI
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Egypt’s non-oil private sector economy experienced a softer decline in business conditions in May, according to S&P Global Egypt Purchasing Managers’ Index (PMI) released on Monday.

It indicated that progress towards a stable demand environment led to a slower, but still solid contraction in activity levels. While higher prices continued to dent sales, output, and purchasing, firms signalled that inflationary pressures were much softer than the highs seen at the turn of the year. Nevertheless, ongoing challenges for non-oil companies meant that the activity outlook remained subdued, and employment levels were cut again.

David Owen, Senior Economist at S&P Global Market Intelligence, said: “The Egypt PMI remained in negative territory in May but showed further promise that current economic headwinds were beginning to dissipate. The headline index rose for the second month running to 47.8, while the two main sub-indices of Output and New Orders rose to their highest levels in 17 and seven months, respectively.”

The headline seasonally adjusted S&P Global Egypt Purchasing Managers’ IndexTM (PMITM) rose from 47.3 in April to 47.8 in May, its highest level since February 2022. Although remaining below the 50.0 no-change mark, the index showed that economic headwinds were starting to dissipate.

S&P Global indicated that Business activity levels continued to fall in the survey period, reflecting sustained efforts by companies to reduce output in line with weaker sales volumes. However, the rate of decline was the softest registered in almost a year and a half, helped by near stabilizations in the manufacturing and services sectors.

Similarly, receipts of new orders at non-oil businesses declined to a lesser extent in May, with this index picking up to its highest for seven months. While firms continued to report subdued demand attributed to inflation, some respondents began to see a recovery in client orders. Notably, new business intakes in the services economy grew for the second time in three months. Additionally, sales to foreign clients decreased at the softest rate in 2023 so far.

S&P Global May survey data showed that inflationary pressures have softened from the multi-year highs recorded in late-2022 and early-2023. A broad steadying of exchange rates meant that purchase prices rose at a pace largely unchanged from April’s 12-month low, albeit still sharply overall. Selling prices rose at a solid and quicker pace, but one that was also much weaker compared to those seen recently.

Nonetheless, the toll of rising input prices and weak demand meant that purchasing activity at non-oil businesses continued to decline, leading to a further contraction in firms’ input inventories. The pace at which input purchases decreased was the slowest seen since last October, however. Ongoing import restrictions meant that lead times on inputs lengthened, albeit only mildly.

“Companies signalled that input cost pressures were again much softer than at the beginning of the year, as a period of stabilization in the Egyptian pound versus the US dollar helped to cool import markets. This led to another relatively soft rise in selling charges, providing some hope that consumer price inflation will fall again in May,” Owen added.

Furthermore, employment cuts were also recorded in May, marking the sixth consecutive month of job losses, according to S&P Global. Firms noted that low sales and difficulties paying staff due to a lack of liquidity were behind the reduction, which accelerated from April but was only marginal overall. Despite the decline in staffing capacity, backlogs of work continued to decrease.

Finally, business expectations towards the next 12 months picked up in May, following a survey-record low at the start of the second quarter. Despite the improvement, confidence levels were still among the lowest ever recorded, amid continued concerns about demand conditions, inflationary pressures, and supply-side challenges. Only 6% of companies were hopeful that output levels will expand over the coming year.

According to Owen, positivity in the services economy – where new business intakes rose for the second time in three months – suggests that demand could make further strides towards a recovery in the coming months.

“Nevertheless, confidence levels remain broadly subdued, with just 6% of respondents expecting a rise in activity over the next 12 months. Although this was still better than the survey-record low registered in April,” he indicated.

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