Egypt’s private sector downturn continues for ninth consecutive month

Tourism affected after EgyptAir incident, in which a plane crashed into the Mediterranean in May killing all 66 people on board.

An Egyptian vendor reads a newspaper as he waits for customers in the Khan El-Khalili market, normally a popular tourist destination, in Cairo. Lefteris Pitarakis / AP Photo

Egypt’s economy suffered a blow last month as tourism was down following the Egypt Air crash in May, while Saudi Arabia’s non-oil private sector continued to expand, albeit without creating job growth.

These were among the findings of the latest surveys of purchasing managers in the countries by Emirates NBD.

The purchasing managers index (PMI) for last month in Egypt was at 47.5, with a reading below 50 indicating a contraction in the non-oil private sector.

It was down slightly from 47.6 in May and was the ninth straight month of contraction.

The PMI report found that “some firms noted a downturn in the tourism industry on the back of a second air incident since last October”, referring to the Egypt Air flight from Paris to Cairo that crashed into the Mediterranean Sea. That followed the bombing in October of a chartered flight en route to St Petersburg in Russia from Sharm El Sheikh.

“Along with ongoing uncertainty regarding the exchange rate, this contributed to a robust decline in new export work,” the Emirates NBD report said.

“Sharp inflation was also mentioned by respondents as a factor behind the fall in total new business,” with costs rising at their fastest pace since surveys began.

Egypt’s core inflation rose to 12.3 per cent year on year last month, up from 12.2 per cent in May, the central bank said yesterday, underlining the effects of a weakening Egyptian pound.

“What we’re seeing in terms of the recent comments by the central bank governor on floating the exchange rate and the recent approval of the budget by parliament is the government moving to introduce comprehensive reform measures in the second half of this year,” said Mohamed Abu Basha, an economist at the Cairo investment bank EFG Hermes.

The government is also rumoured to be in informal talks with the IMF, presumably to arrange a financial package that would help ease the transition and open up other possible financial assistance, he said.

“As we start the new fiscal year in July, hopes for a stronger recovery will depend in large part on whether a solution to the ongoing foreign exchange liquidity crunch can be found in the near term,” said Jean-Paul Pigat, a senior economist at Emirates NBD.

Meanwhile, the reading for Saudi Arabia showed that non-oil growth continued, but at a slower rate than that which has prevailed since the oil price crashed and job growth ground to a halt.

The Saudi PMI was at 54.4 in June, down slightly from 54.8 in May.

“Firms appear to be increasing operating efficiency, as jobs growth remains sluggish even as activity and new orders are rising,” said Khatija Haque, the head of Mena research at Emirates NBD.

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