Private sector downturn eases in August amid softening inflation
Activity in Egypt’s non-oil private sector contracted at a slower pace in August on a relative easing of inflationary pressures, according to S&P Global’s latest purchasing managers’ index (pdf). Output and new orders inched higher for the second consecutive month from June's lows as clients’ spending constraints began to relax. The index rose to 47.6 last month, up from 46.4 in July — its highest reading since February, though still well below the 50.0 threshold that separates growth from contraction. This is the 21st consecutive month that the gauge suggests activity in Egypt’s private sector has declined.
The outlook remains uncertain: August's PMI shows a “move in the right direction with the headline index up for the second month running,” said S&P Global economist David Owen. “Monetary policy uncertainty, a weakening exchange rate, and the continued war in Ukraine mean there are still high levels of risk for the economy over the rest of 2022,” he said.
Input cost pressures eased: Input costs rose at a slower pace in August, although raw material supplies continue to be impacted by pressure on the EGP and import restrictions aimed at keeping foreign currency in the country. Input purchase levels dropped for the eighth successive month as companies curb their spending due to weak sales.
New orders continued to decline, but at a slower pace: Businesses continued to see a drop in client demand, though new orders decreased at the softest rate since April, leading to a slower fall in output. End prices for products and services continued to record “solid” rises in August, though also at a much slower rate.
What do you mean “easing inflationary pressures,” S&P? Inflation in the wider economy reached a three-year high of 13.6% y-o-y in July — largely on the back of higher food and fuel prices. That said, global commodities markets have on the whole been cooling as the immediate impacts of war in Ukraine subside, which could explain the relative easing of cost increases in the private sector in August compared with July, economist Mona Bedeir tells Enterprise. Most analysts are expecting the reprieve to be short-lived, predicting inflation to continue rising through the rest of the year as underlying pressures remain high.
Some good news on hiring: Hiring picked up at its fastest rate since October 2019, as firms brought on staff to make up for job cuts earlier in the year. Meanwhile, wage costs decreased for the first time in five months despite record-high inflation.
Businesses are still wary: Confidence fell to their lowest level on record barring last March, with only 9% of companies forecast output growth over the coming year. Weak market conditions, high inflation and supply issues dampened expectations on the business outlook.
In the foreign press: Reuters is stressing the doom and gloom in its report on this month’s PMI, while Bloomberg is more optimistic, emphasizing strong readings out of the Gulf and the softening contraction here.
FROM THE REGION –
UAE output at 3+ year high: Private sector activity in the UAE continued to grow in August as output rose at the fastest rate since June 2019. The PMI (pdf) rose to 56.7 from 55.4 in July in response to an increase in demand and new orders on the back of lower fuel prices and slowing inflation.
BUT- Confidence fell to its lowest level in 17 months due to fears of an oncoming global recession.
Saudi private sector growth hits 10-month high: Growth in the Saudi private sector picked up pace in August, with the PMI (pdf) rising to 57.7 from 56.3 in July — its highest since October last year. Purchasing saw its sharpest uptick in seven years, backed by high demand and strengthened business activity, providing further evidence of the resilience of the Saudi economy amid global growth fears.