Egypt's private sector contraction eases in October as new orders drop

Business outlook improved 'greatly' in October on hopes of stronger market activity, IHS Markit data shows

An old Nile Cruise boat sails along the Nile River in Luxor, Egypt October 27, 2019. REUTERS/Amr Abdallah Dalsh

Egypt's private sector activity dropped slightly in October for the third consecutive month as new orders declined and output fell, according to a new survey of companies.

IHS Markit's Purchasing Managers' Index (PMI), which measures the health of the non-oil sector, dropped marginally to 49.2 in October from 49.5 in September, staying below the 50 mark that separates contraction and expansion, according to a report on Tuesday.

The headline PMI drop "while signalling a marginal deterioration in operating conditions, was still above the series average of 48.4, and thus pointed to a softer decline than usual", said David Owen, economist at IHS Markit.

Egypt signed a three-year, $12 billion (Dh44.07bn) Extended Fund Facility in November 2016 to revive its economy through tough reform measures. The government devalued its currency and cut subsidies at the end of 2016 to secure the loan agreement, followed by further spending cuts. The reforms helped end a major dollar shortage, repaired overburdened finances and pulled the country out of an economic crisis, although Egyptians have felt pressured by the austerity measures.

Lower sales and liquidity problems led to the overall reduction in business activity during September, according to the survey of Egyptian companies. This contributed to a further increase in work-in-hand, though that was the slowest increase since July.

New orders fell in October for a third straight month as demand remained subdued. The pace of decline of orders was the fastest since May, though the drop was still "relatively modest".

Exports were also down in September for the first time in four months, with Egyptian exporters attributing this to poor market conditions, the report said.

"Sales dropped for the third successive month, with new orders from abroad also sliding into contraction territory." Mr Owen said. "Firms noted that market conditions were weak at present, leading to a reduction in the amount of new contracts."

Egyptian companies said they expanded their workforce in the past three months, although rates of growth were marginal and that weak employment levels in the economy were softening demand.

"Labour market conditions have reportedly been slow, although continued hiring activity among surveyed firms suggests a possible improvement in the future," Mr Owen said.

Prices rose at the slowest pace for four months, and some businesses reduced their prices to attract new customers.

Business sentiment jumped in October from September's near three-year low, with 48 per cent of companies surveyed expecting business activity to rise over the coming year, the report said. Despite lower current sales, companies were hopeful of future contracts leading to a rebound in activity.

"The forward-looking business outlook improved greatly during October, signalling regained hopes of stronger market activity in the months ahead," Mr Owen said.