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Wednesday, 8 January 2020

Egypt’s non-oil business activity inches up in December, remains in contraction territory

Non-oil business activity improves slightly in December, but it’s still in contraction territory: Egypt’s non-oil private sector continued to contract in December, albeit at a slightly slower rate than November, which saw the lowest level of private sector business activity in two years, according to the Markit / Emirates NBD purchasing managers index (PMI) (pdf). The PMI gauge inched up to 48.2 in December from 47.9 in November, 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. Egypt’s PMI expanded only twice in 2019.

Despite the softer m-o-m downturn, “headwinds remain on the external front, with new export orders falling at the steepest rate in over three years,” said David Owens, economist at IHS Markit. Output levels and new orders both dropped during the month on the back of “subdued” market conditions that panelists say persisted throughout the year. Some firms also reported liquidity issues having an effect on output levels.

Companies cut jobs for the second month in a row: The decrease in December’s employment figures was also sharper than in November. Some firms simply did not replace voluntary leavers, while other firms actively reduced their labor force due to low orders.

Demand from foreign clients was particularly hard-hit during the month, as a “difficult trade climate” pushed it to fall at the steepest rate in three years

The bright spot — EGP rally curbs input cost inflation: The strengthening of the EGP over the past several weeks drove down input cost inflation as firms were able to import raw materials at lower costs. “Companies have responded with solid reductions in output charges during the past two months, which may help to boost sales in the near future,” Owens said. Respondents said they hope the discounts will drive up sales volumes over the next few months. “Upcoming PMI releases will show whether the non-oil sector can be swiftly reinvigorated.”

Business sentiment for 2020 was higher than the average in 2019, as respondents remain optimistic that a rebound in activity — buoyed by a strengthening EGP and the opening of new branches — is in the cards.

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