Egypt's private sector contracts in November as new orders drop

The outlook for companies remained positive overall with a high proportion expecting output to rise in the next 12 months

This picture taken on October 23, 2019 from the Cairo Tower in the centre of the Egyptian capital shows a view of the Nile river flowing through the city between the central downtown (R) and Zamalek (L) districts. (Photo by Mohamed el-Shahed / AFP)Show less

Egypt's non-oil private sector activity contracted in November to its lowest levels since September 2017 as new orders fell and firms voiced concerns on the local economy, according to a new survey of companies.

IHS Markit's Purchasing Managers' Index (PMI), which measures the health of the non-oil sector, declined to 47.9 in November from 49.2 in October, remaining below the 50 mark that differentiates contraction and expansion, the report found on Tuesday.

"Businesses highlighted concerns over the domestic economy and new business declined for the fourth consecutive month," David Owen, economist at IHS Markit, said. "The downturn was extended to foreign orders, with firms noting weakness in key export markets."

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.

A "continued market slowdown" led to a drop in output and new orders while employment fell for the first time since July, according to the IHS Markit survey.

Companies reduced their output for the fourth consecutive month in response to a drop in new orders.

New business fell at a faster rate in November, which companies attributed to the slowdown in the market. Exporters also said sales dropped despite new contracts with firms in Saudi Arabia, Greece, Morocco and other countries.

Responding to the drop in demand, companies also reduced their selling prices to stimulates sales. The drop in sale prices was the quickest rate in the index's history, the report said.

Employment fell in November for the first time in four months due to the lack of new business.

"On the positive side, inflationary pressures continued to ease, with the latest mark-up in input costs being the second-softest on record. This allowed companies to raise input buying and also lower selling prices for the first time since May," Mr Owen said. "The drop in charges may see some demand restored in future months."

Egyptian companies' future sentiment decreased slightly last month, with some expectation of the slowdown in market conditions to linger, the report said. However, the overall outlook remains positive with a "high proportion" of firms expecting future output to rise in over the next 12 months.