June 10, 2019 / 4:23 AM / 6 months ago

Egypt non-oil private-sector activity contracts after brief growth

CAIRO, June 10 (Reuters) - Egypt’s non-oil private-sector activity contracted last month after its first expansion in eight months in April, a survey showed on Monday.

The Emirates NBD Egypt Purchasing Managers’ Index (PMI) for the non-oil private sector weakened to 48.2 in May from 50.8 the previous month. A reading below 50 separates growth from contraction.

The April level matched that of February, which was the slowest since September 2017.

May’s performance signalled “a moderate deterioration in the health of the sector after a slight improvement in the previous month,” the report said. “PMI was broadly in line with the average for the series.”

A sub-index for output saw a “modest” contraction, falling to 47.9 in May from 51.1 in April.

“While 21% of respondents reduced activity, 12% reported growth,” the report said. “Firms that saw a decline often noted weaker market activity due to low client turnout.”

Daniel Richards, MENA economist at Emirates NBD, said Egypt’s private sector was bearing the brunt of economic reforms and that would likely remain a pressure for several months.

“While easing price growth in recent months – CPI inflation fell to 13.0% y/y in April – has offered some respite, upcoming subsidy reforms and a renewed pause in the CBE’s cutting cycle mean that conditions remain difficult for private firms,” he said.

Egypt is due to lift remaining fuel subsidies on most energy products, part of reforms tied to a $12 billion IMF loan. Along with deep cuts to energy subsidies, it has also sharply devalued its currency and introduced a value-added tax under the deal.

“The dip back below 50 was driven by both output and new orders, both of which saw moderate declines compared to the previous month, following expansions in April,” said Richards.

New export orders remained in contractionary territory at 47.5 in last month, down from 48.9 in April.

“Nearly 14% of respondents noted a decline, citing weaker tourism activity and a lack of foreign contracts from Gulf countries,” the PMI report said. “The drop in external demand was in line with the series average.”

Future output sentiment softened slightly from April, though remained stronger than most readings in 2018.

“Although private Egyptian companies will remain under pressure over the summer months, we maintain our outlook that conditions will improve,” Richards said. (Reporting by Yousef Saba; Editing by Mike Harrison)

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