Egypt's Exports at Highest Rate since November 2017

Egypt’s non-oil private sector economy saw a marginal improvement at the start of the third quarter of the year, as output and new orders increased slightly, although employment has continued to fall, according to the Markit Emirates NBD purchasing managers' index (PMI) gauge issued .

The report said that exports increased to their highest rate since November 2017. Input cost inflation jumped due to a hike in fuel prices, which was partly passed on to consumers through higher output charges.

In addition, the non-oil private sector economy rose from 49.2 percent in June to 50.3 percent in July, moving above the 50 percent neutral threshold to signal the first improvement in business conditions since April, albeit only a marginal one.

Key to the improvement was a slight increase in activity at non-oil private sector firms in July, only the second monthly expansion in 20 months, alongside April.

"Companies boosted output in the wake of higher new orders at the start of the third quarter, although the overall rise in demand was marginal," the report said, noting the increased market activity and the introduction of new export contracts as reasons for stronger sales.

"Moreover, total new business from abroad rose for the first time since last August and at the sharpest pace for over a year-and-a-half," the report said.

It added that companies highlighted increased demand from a number of foreign markets, with clients from the Middle East, Africa and Europe placing greater volumes of new work. Concurrently, firms expanded their purchasing activity during July.

Following a slight reduction in June, according to the report, the latest increase was solid and the most marked for six months. In addition to greater output requirements, some businesses raised their purchases to build up stocks due to growing fears over input prices.

It also traced that the rate of overall cost inflation, which was the highest in nine months during July, mainly due to increased fuel charges after the government cut subsidies that were previously initiated through reform packages. This also caused firms to mark up their selling prices overall.

"Employment continued to decline in July, although the latest decrease was marginal and broadly similar to that seen in June. Retirements and voluntary leavers mainly drove the overall reduction, whereas some firms increased their workforce numbers to meet higher sales volumes. Staff costs meanwhile rose at a modest pace that was nonetheless the fastest recorded in six months," the report said.

Sentiment around future output improved from June’s five-month low, as more businesses displayed a positive outlook due to hopes of higher market activity and a fall in the value of the US dollar. That said, rising fuel charges weighed slightly on the overall level of optimism.

“The latest business survey for the Egyptian non-oil private sector gave some encouraging signs for activity in July. The headline PMI showed a slight improvement in operating conditions, driven by higher output and new orders," economist at IHS Markit and author of the report David Owen said.

“A noticeable factor was an increase in contracts from foreign clients, leading to the first rise in new export orders since August 2018. The rise in demand came from a number of countries, signalling that Egyptian businesses are growing in their competitiveness on trade," he added.

“Another key impact on businesses was a sharp rise in fuel prices that led to increased overall input costs. According to reports, domestic fuel charges were raised by up to 30 percent across the country as the government implemented further subsidy cuts to bring prices in line with the market. Subsidies were initially introduced through IMF-led economic reform packages that are nearing their end. As such, it is likely that the impact on costs will be temporary, with the rate of inflation possibly returning to its relatively low level seen during the first half of 2019," Owen said.

“Furthermore, optimism toward future output growth improved in July. Some firms based their outlook on hopes of a strengthening Egyptian pound in the near-term as the US dollar may fall in value through interest rate cuts. Overall, firms are generally positive when regarding the future condition of the economy."