Egypt’s non-oil economy stabilises in June on new orders and export growth

A tourism sector rebound also supported business activity as the country eased pandemic-related restrictions

Business conditions in Egypt's non-oil private sector economy stabilised in June as output and new orders increased for the first time in seven months.

The country's IHS Markit Purchasing Managers' Index rose from 48.6 in May to 49.9, a notch below the neutral 50 threshold, as it hit its highest level since November 2020. A reading above 50 indicates economic expansion while anything below points to a contraction.

The 1.3 point rise in the PMI index was mostly driven by the output and new orders' sub-indexes, both of which rose above the 50 mark.

The latest reading pointed to an increase in activity, which panellists largely attributed to a strengthening of market conditions as Covid-19 measures eased in the Arab world’s third-largest economy.

"A second successive rise brought the Egypt PMI almost to the 50 growth mark in June … to record its highest reading in seven months,” said IHS Markit economist David Owen.

Businesses also recorded an increase in visitor numbers as the country opened up its borders. The tourism sector accounts for about 12 per cent of Egypt’s economy.

An improvement in export orders at the end of the second quarter also supported business activity in the most populous Arab country.

The rate of export sales growth hit its quickest pace since February. However, some panellists underscored weak domestic demand that weighed on overall sales.

The rise in new orders in June also helped to stem the recent decline in purchasing activity. Businesses kept stock levels unchanged for the first time in six months and continued to reduce backlogs of work amid an improving economic outlook.

The Egyptian economy has fared better than other Mena economies despite last year's coronavirus-induced headwinds. It is the only country in the region whose economy grew in 2020, according to the World Bank.

Africa's second-largest economy is expected to expand by 2.8 per cent in the fiscal year ending June 30, 2021, and accelerate by 5.2 per cent during the 2021 to 2022 financial year, according to the International Monetary Fund.

In June, the fund completed its final review of Egypt's reform programme, allowing authorities to draw $1.7 billion in funding to bring the total financing under a 12-month stand-by arrangement to $5.4bn.

The money will help the country to continue its reforms and support its economy, which still faces pandemic-related uncertainty, the IMF said in a statement at the time.

The North African nation needs to boost private sector-led growth, foster the labour market participation of women and youth, and encourage exports as it recovers from the coronavirus-induced slowdown, according to the fund.

Employment numbers fell further in the latest IHS Markit survey as several companies opted not to replace voluntary leavers. Some businesses hired workers but the latest data indicated that demand growth has yet to grow strong enough to drive a wholesale boost to employment.

“While output and new orders moved into expansion territory, it was the employment index that held back the headline figure as job numbers continued to fall overall,” said Mr Owen.

“However, with demand creeping up and Covid-19 restrictions easing, it might not be long before hiring growth resumes.”

Updated: July 6th 2021, 8:22 AM
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