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Thursday, 4 June 2020

Non-oil private sector slowdown eases in May

Non-oil private sector slowdown eases in May: Egypt’s non-oil business activity fell at a slower rate in May, a month after the covid-19 pandemic caused the private sector to suffer its deepest contraction ever, according to IHS Markit’s purchasing managers’ index (PMI) (pdf). The PMI gauge rose 11 points to 40.7 in May, a significant recovery from the record low of 29.7 in April, but still the second fastest in a 10-month sequence of continuous declines. PMI readings above 50.0 suggest business activity is growing, while a reading below points to a slowdown.

Output, new orders in steady decline: Output levels dropped as many firms were still shut in May due to the government’s lockdown measures, though the decline was significantly less than that seen during April. New orders also suffered as stagnating demand continued through the month.

Unemployment accelerates at fastest rate in three years: Companies cut jobs at the fastest pace since January 2017, and for the seventh consecutive month. Reductions in salaries led to the highest drop in wage costs and first fall in input costs since 2011. “The remaining solace for Egyptian firms is that overall cost burdens eased for the first time in the series’ history,” IHS Markit economist David Owen noted.

Purchasing activity down, prices up: Lower input requirements from weaker sales led to reduced purchasing activity, but deliveries to companies slowed less in a slight recovery from the disruption to supply chains seen during March and April. Lower prices for plastic and other raw materials were offset by pricier food items and medical supplies. Output charges also dropped for the seventh consecutive month as firms offered discounts to boost sales.

Cautious optimism going forward: Firms were optimistic they would see the market recover once the pandemic subsides, “though concerns arose that the US/China relationship is worsening, which could affect any rebound in global demand," Owen noted.

Over in the Gulf: Saudi Arabia also saw slower, though sustained, reductions in output, new work and employment (pdf) while the UAE also stayed in contraction territory despite some signs of recovery (pdf) as the market remained weak and businesses cut jobs.

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