Another Stumble for Egypt as Business Activity Nears 3-Year Low

(Bloomberg) -- Non-oil private sector growth in Egypt slowed to its lowest level in almost three years, dashing hopes for a rebound as weak consumer demand offset the potential boost of single-digit inflation.

The IHS Markit Purchasing Managers’ Index fell for the sixth consecutive month in January to 46, well below the 50 level that marks an expansion in business activity. The slump came even as inflation remained well within the central bank’s target range of 9%, plus or minus 3 percentage points by the fourth quarter of 2020.

Helping fuel the drop was a “sharp contraction in output at Egyptian firms, with the rate of decline accelerating to the fastest since January 2017,” IHS said in a report. Export demand also weakened for a fourth month, IHS said.

The downturn dealt a setback to Egypt’s campaign to grow the private sector as a key part of the next phase of its sweeping economic program launched in 2016. The first part of the program aimed at reviving economic growth and was backed by the International Monetary Fund, which provided the government with a $12 billion, three-year loan. The effort helped transform Egypt into an emerging market debt darling, though foreign direct investment has been slow to come.

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With economic growth of around 6% and inflation back into the single digits after topping 30% following the devaluation of the currency in 2016, authorities are looking to the private sector to sustain the momentum. But most in the nation of nearly 100 million are still struggling with the aftershocks of the currency flotation, which eroded real incomes, and the lifting of fuel subsidies.

While a lower U.S. dollar reduced some import costs, the higher prices of some raw materials and increased salaries due to elevated living costs meant that companies’ overall expenses rose marginally,” IHS said.

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The survey also found that employment at non-oil businesses fell for the third month as some companies, facing weaker demand, opted not to replace workers who left for other job opportunities.

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