Egypt's non-oil private sector expands in July

Second time business activity has risen in 2019 as companies' output and new orders improved, IHS Markit data shows

Egyptians bathe during summer vacations at a popular beach in the city of Alexandria, on August 01, 2019.  / AFP / Mohamed el-Shahed
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Private sector business activity in Egypt expanded in July for the first time since April, marking the second instance of growth in 2019, driven by companies' higher output and new orders.

The IHS Markit's Purchasing Managers' Index, which measures the health of the non-oil sector, rose to 50.3 from 49.2 in June, moving above the 50 mark that signals growth in business activity, according to a report on Monday.

"A noticeable factor was an increase in contracts from foreign clients, leading to the first rise in new export orders since August 2018," said David Owen, IHS Markit economist and author of the report. "The rise in demand came from a number of countries, signalling that Egyptian businesses are growing in their competitiveness on trade."

The International Monetary Fund has approved a $2 billion (Dh7.34bn) tranche, the last instalment of a three-year $12bn loan to Egypt that helped the Arab nation to revive its economy through tough austerity measures.

Egypt devalued its currency and cut subsidies at the end of 2016 to get loan agreement, followed by further rounds of spending cuts. The reforms helped end a major dollar shortage, repaired overburdened finances and pulled the country out of economic crisis, although Egyptians have felt the burden of austerity measures.

An improvement in output and new orders, which account for half of the index's weighting, accounted for the pick-up in private sector growth during July.

Companies boosted output in the wake of more new orders at the start of the third quarter, although the rise in demand was marginal, the report said. Egyptian firms attributed the stronger sales to new export contracts and an overall increase in market activity.

New business from abroad rose for the first time since August 2018 and at the sharpest pace for more than 18 months. The demand mainly came from markets in the Middle East, Africa and Europe with clients making more orders for new work.

Inflation in July rose the most in nine months, mainly due to increased fuel charges after the government cut subsidies, which led firms to increase the price of goods and services, the report said.

The impact of the subsidies on cost is likely to be temporary because the IMF-led reforms are nearing their end, with the rate of inflation expected to return to the relatively low levels seen in the first half the year, Mr Owen said.

Egyptian firms held a bullish outlook on the state of the economy for the remainder of the year.

"Optimism toward future output growth improved in July," Mr Owen said. "Some firms based their outlook on hopes of a strengthening Egyptian pound in the near-term as the US dollar may fall in value through interest rate cuts."