Egyptian Index Points to Biggest Economic Contraction in More Than Two Years
Egyptian Index Points to Biggest Economic Contraction in More Than Two Years
Egypt’s non-oil private sector growth slowed to its lowest level in over two years, weighed down by lackluster demand as the Arab world’s most populous nation forges ahead with a sweeping economic revival effort.
The IHS Markit Purchasing Managers Index fell for the fourth consecutive month to 47.9 in November, below the 50 level that marks an expansion in business activity, even as inflation slowed to a nine-year low. The rate of decline “strengthened to a solid pace, as businesses sought to limit activity due to a drop in new orders,” IHS Markit said. Also weighing in was a drop in exports.
Businesses “highlighted concerns over the domestic economy,” David Owen, an economist at IHS Markit said in a statement. On a positive note, however, the slowdown in inflation allowed for the mark-up in input costs to come in as the second-softest on record, he said.
“This allowed companies to raise input buying and also lower selling prices for the first time since May,” Owen said. “The drop in charges may see more demand restored in future months.”
Inflation has been a key target for the government, which embarked on a far-reaching economic program in 2016 that included devaluing the currency and raising the benchmark interest rate in a bid to curb a crippling dollar shortage. The move helped Egypt secure a $12 billion International Monetary Fund loan, boosting what had been faltering investor confidence in the country after the 2011 uprising that ousted President Hosni Mubarak.
Non-oil private sector business activity has struggled over the years, and the PMI has shifted over 50 only twice in the past year, reflecting the challenges that sector faced as inflation soared past 30% following the currency float.
With inflation slowing to 3.1% in October, the central bank extended its easing cycle in its last meeting and cut the benchmark rate for the third consecutive time -- a move that’s key to spurring lending.
The survey results, however, suggest that the changes are still not showing up in terms of private sector growth, a critical policy target for the government as it seeks to secure continued IMF support with the loan deal now completed.
Employment fell for the first time in four months in November, IHS Markit noted, adding that several businesses either cut staff or lost employees to other jobs.
Future sentiment, however, “remained positive overall,” with a high proportion of companies expecting output to increase in the next year, it said.
To contact the reporter on this story: Tarek El-Tablawy in cairo at teltablawy@bloomberg.net
To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Amy Teibel, Michael Gunn
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