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Business conditions deteriorate quickly in Egypt

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Christian Fernsby ▼ | April 6, 2020
Egypt's non-oil private sector economy failed to escape the Covid-19 pandemic in March, with disruptions to tourism and consumer spending causing marked falls in both activity and sales.
Egypt street
Egypt   Employment declined further, while confidence for future output dropped
Employment declined further, while confidence for future output dropped to a record low.

Topics: Egypt

On the bright side, input cost inflation remained subdued.

The headline seasonally adjusted IHS Markit Egypt Purchasing Managers’ Index™ (PMI®) – a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – fell from 47.1 in February to 44.2 in March, to indicate a sharp deterioration in business conditions at the end of the first quarter of the year and the strongest recorded since January 2017.

The decline was driven by marked downturns in both output and new orders at Egyptian businesses.

The level of activity fell at the sharpest pace in over three years, with panellists highlighting that lower volumes of new work curtailed output.

Disruption largely arose due to the Covid-19 outbreak, with firms often noting that tourism activity was heavily impacted by the reduction in flight travel.

Other businesses cited an ongoing effect from the closure of Chinese factories, leading to reduced input availability.

As a result of the virus outbreak, domestic markets slowed, causing a marked drop in new orders at Egyptian firms.

Sales were also reportedly weakened by low employment, while export volumes decreased at the quickest pace in over seven years.

The slowdown led to a further contraction in input purchases during March, with the rate of decline accelerating to the fastest in more than three years.

Stock levels subsequently dropped, albeit at a softer and marginal pace.

Employment in the non-oil sector meanwhile fell for the fifth month running in March.

Businesses were reportedly left short of workers due to a number of employees leaving for other opportunities.

With sales falling, many of these positions were not replaced, causing a solid drop in workforces overall.

Nevertheless, firms were able to reduce backlogs in March, with latest data signalling the first monthly fall in outstanding work for 12 months.

Egyptian businesses meanwhile saw a decline in vendor performance, linked to travel disruption from the Covid-19 outbreak and earlier Chinese factory closures.

The rate of deterioration was modest but still the quickest for 19 months.

At the same time, cost inflationary pressures rose in March, mainly due to an appreciation of the US dollar.

Some firms also saw increases in raw material prices.

However, reductions in other prices, notably oil, meant that the overall uptick in input costs was marginal.

As such, companies were again able to lower output prices, although the rate of decline softened from February.

With the Covid-19 outbreak ongoing, firms were often more downbeat about future output prospects in March.

This brought confidence levels down to the lowest in the series history, with many fearing a lasting impact on the domestic and world economy.