Egypt's private sector activity hits 8-month high in July on stronger demand

Egypt's private sector activity improved in July, starting the new fiscal year with expansion driven by strong demand, according to the latest survey of companies.

Emirates NBD Purchasing Managers' Index rose to 50.3 in July from 49.4 in June, reaching an eight-month high. Readings above 50 indicate growth, and below 50, signal contraction. The index is a composite indicator designed to give an overview of operating conditions in the non-oil private sector economy. The survey is sponsored by Dubai's biggest lender, Emirates NBD, and produced by IHS Market.

Orders from domestic and foreign sources helped the expansion.

"The positive PMI reading for the first month of the new fiscal year supports our view that real GDP growth will strengthen in 2018-2019 as there is a greater recovery in the private sector, supported by gradual monetary policy normalisation, improved political stability and a rebound in the tourism sector," said Daniel Richards, Mena Economist at Emirates NBD.

Egypt, whose fiscal year runs from July to June, has shown signs of an economic recovery after authorities abandoned currency controls and secured a $12 billion International Monetary Fund loan deal to implement a package of reforms including subsidy cuts.

Though the PMI reading shows only a "marginal strengthening" in business conditions, the July figures indicate that new orders are growing.

The private sector reported higher volumes of new business for the first time in three months. A rebound in tourism drove domestic new orders while a strong global economy supported a rise in new exports, the survey showed.

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However, a shortage in raw materials and increase in costs weighed on producers, leading output to contract for the third consecutive month, the report said.

Higher fuel prices increased producers' costs, leading them to raise selling prices further. Egypt's inflation accelerated to an 11-month high in June after the government slashed energy subsidies to reduce the budget deficit.

Output and employment fell in July, but at slower and marginal levels than in June. A liquidity crunch reduced companies' purchasing activity during the month, but the strong demand led them to utilise their stocks.

Private sector expectations for growth in the next 12 months remained positive in July, though the degree of optimism fell from June, the survey showed.

"A strong global economic picture alongside the rebound in tourism underpinned positive sentiment," it said.