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Daniel Richards - MENA Economist
Published Date: 03 July 2019
Egypt’s non-oil private sector remained under pressure in June, although the pace of decline slowed from May. The Emirates NBD Purchasing Managers’ Index (PMI) stood at 49.2, up from 48.2 the previous month. While still firmly in sub-50.0 contractionary territory, the average of 49.4 over Q2 2019 was the strongest since Q3 last year, and was markedly better than the long-run series average of 48.4.
Both output and new orders – which together account for a little over half of the index’s weighting – saw substantial improvements in June, albeit still indicating a slowdown in activity. Only 11% of respondents saw output decline, while 10% increased output. New export orders seemed to weigh down domestic activity, with very few firms registering an uptick in demand. The strengthening in the Egyptian pound over the past several months to levels last seen in March 2019 could potentially pose a challenge to export-oriented businesses.
In a positive for firms’ margins, output prices stayed flat in June, following two months of cuts, while the pace of growth in input prices slowed to the second-slowest in the eight-year series – the slowest was recorded earlier this year, in March. This may prove short lived however, given upcoming subsidy reform scheduled for the new fiscal year will likely push energy and fuel prices up once more. There was a significant spike in the measure when the last round of reforms was implemented in summer 2018.
As such, firms seem to be looking to cut costs elsewhere. The employment index was negative for the second month in a row, although this was reportedly in part due to employees seeking new opportunities, and a similar proportion of firms took on new staff as saw workers leave.
Overall, the future output index remained strongly positive, albeit less so than in May. Around a quarter of respondents anticipate an improvement in activity over the next 12 months, compared to just 3% expecting a deterioration. This chimes with our outlook for Egypt, where we expect a modest acceleration in GDP growth this year.
Source: IHS Markit, Emirates NBD Research
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