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Business conditions soften in Egypt

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Christian Fernsby ▼ | February 5, 2020
Egypt's non oil private sector weakened at a stronger rate at the start of the year, as the downturn in sales gathered pace and led to a sharp reduction in business activity.
Egypt street
Business in Egypt   Employment and purchases were down solidly
Employment and purchases were also down solidly, leading to only a slight uptick in input costs and driving firms to offer discounts for the third month in a row.

Topics: Egypt

Nevertheless, business expectations remained fairly positive.

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 to a near three year low of 46.0 in January, from 48.2 in December, to indicate a solid deterioration in business conditions in the Egyptian non oil private sector.

The health of the sector has now declined in each of the past six months.

Contributing to the downturn was a sharp contraction in output at Egyptian firms, with the rate of decline accelerating to the fastest since January 2017.

Companies noted that the stronger drop in activity was linked to weaker sales.

The fall in new orders was the quickest in nearly three years, with panellists commenting on a lack of new contracts and reduced market movement.

Furthermore, export demand softened for the fourth month running.

As a result, supply side factors were negatively hit.

Most notably, purchasing activity fell at the sharpest pace in 28 months, following only a slight upturn in December.

Firms often found that reduced sales led to lower input requirements, which in turn limited purchases and stock levels at the start of the year.

Despite this, lead times lengthened for the second consecutive month, albeit slightly.

Weaker demand for inputs restricted cost inflation in January as suppliers kept purchase prices broadly flat for the first time in the series history.

Firms were also helped by a lower US dollar value that reduced import costs.

However, higher prices of some raw materials, and increased salaries due to elevated living costs, meant that overall expenses rose marginally.

That said, with cost pressures generally subdued and demand remaining weak, companies continued to lower selling charges, extending the current run to three months.

The latest reduction reflected firms' efforts to generate stronger demand in the market.

Meanwhile, employment at Egyptian non oil businesses declined for the third month running, as several panellists saw employees leaving during the month for other job opportunities.

Many of those firms chose not to replace these workers, as weaker sales reduced labour requirements.

Looking forward, companies were slightly less upbeat around the outlook for activity, although the degree of optimism was still broadly in line with that seen on average across 2019.

A strong proportion of respondents expect output to grow in the coming 12 months.

By contrast, a few firms expressed worries that the current decline in activity will continue throughout 2020.