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Monday, 6 September 2021

Egypt’s private sector is responding to rising inflation by buying. A lot.

Egypt’s non-oil private sector shrank again in August, but at a slower pace than in July: Business activity in Egypt’s non-oil private sector contracted for the ninth straight month in August — but a record surge in corporate spending and a pick-up in demand softened the decline, according to IHS Markit’s Purchasing Managers’ Index (pdf). The index rose to 49.8 in August, up slightly from 49.1 in July, but still below the 50 mark that separates contraction from expansion.

This was the first time purchasing activity expanded in nine months and grew at its quickest pace since the survey began in April 2011, IHS Markit said.

Output and new orders rose for only the second time since December, indicating that businesses are continuing to rebound from the pandemic, the report said. Both metrics remained above their long-run averages for the fourth consecutive month, suggesting that the private sector is in a “second phase of recovery,” said IHS Markit economist David Owen.

Fuelling the buying spree: A fear of inflation. Input cost inflation rose to its highest level in two years, leading purchasing managers to rush to build up stock in August ahead of an anticipated further price surge. Businesses pointed to the rise in commodities such as metals, plastics and timber — as well as anticipated shortages due to pandemic-induced supply chain disruptions — as factors affecting the uptick. Supply chain pressures also weighed on inventories, which saw a decrease for the first time in three months as firms leveraged their existing stocks in order to boost output.

Which led to a rise in end prices for consumers: A rise in transport costs and customs fees also led to a markup in prices that were passed on to end-consumers, as firms sought to improve margins.

Employment increased for the second month running, with survey participants attributing the growth in part to an increase in tourism and a rebound in market activity.

But growth rates were marginal, with all three indices hovering below the 50 mark and remaining in contraction territory, though more than half of firms surveyed expressed strong optimism that the growth would be sustained over the coming year.

The latest PMI figures got attention in the foreign press: Reuters | Bloomberg.

ELSEWHERE IN THE REGION- Saudi Arabia’s PMI reading (pdf) dropped for the second month running in August, recording 54.1 in August from 55.8 in July — the slowest growth recorded in five months. Businesses forecast subdued future output, leading to negligible growth and a slow-down in the pace of new stock purchases.

The UAE’s non-oil private sector saw a decline in its growth rate, with a PMI reading (pdf) of 53.8 in August, down from 54.0 in July. Though business activity in the UAE expanded at its fastest rate since July 2019, new covid variants cast a shadow of uncertainty over future demand. But businesses remain optimistic that Dubai’s Expo 2020 could provide the country with an investment boost.

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