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Monday, 7 October 2019

Egypt’s non-oil business activity improves marginally in September, but remains in contraction territory

Non-oil business activity improves marginally in September, but remains in contraction territory: Egypt’s non-oil private sector continued to contract in September, albeit at a slightly lower rate than August, as output fell for the second consecutive month, according to the Markit / Emirates NBD purchasing managers’ index (PMI) (pdf). The PMI gauge rose fractionally to 49.5 in September from 49.4 in August, indicating a slight m-o-m improvement. A reading above 50.0 indicates that activity is expanding, while a reading below that mark means it is contracting. So far, Egypt’s PMI has been in expansion territory only twice this year.

Export orders increased for the third consecutive month, but domestic demand weakened at an accelerated pace. The increase in foreign sales was, however, “softer than in August,” said David Owens, economist at IHS Markit. The overall decline in output pushed up input inventories, which kept firms’ “purchasing activity broadly unchanged.”

Input cost inflation still rising, but not as much as previous months: Businesses experienced higher input costs last month, with panelists reporting a rise in the prices of fuel, energy, metal, and some raw materials. “However, an improvement in the exchange rate against the USD helped to ease inflationary pressure.” The weaker rise in input charges pushed the increase in output charges to decline in tandem, and some firms even lowered their fees on the back of reduced demand.

On the bright side, the increase in employment last month was the largest seen in 13 months. Staff costs also rose “at the quickest rate since last December, as companies looked to improve employee satisfaction.” Despite the expanding labor force, firms reported rising backlogs for the sixth month running.

Business sentiment at near-two-year low: “Expectations for future business activity were down markedly from the 18-month high in August, with September data indicating the weakest level of positive sentiment since October 2016.” That said, businesses expect improved activity over the next 12 months.

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