Egypt's non-oil private sector economy saw only a fractional worsening of operating conditions in December, as new orders dropped at the softest pace in four months, according to the latest Emirates NBD Egypt Purchasing Managers' Index. Purchasing activity grew at the fastest rate since May, while employment continued to fall. Input cost inflation eased even further, setting a new record low across the survey history. The seasonally adjusted Emirates NBD Egypt Purchasing Managers' Index (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – rose from 49.2 in November to 49.6 in December, signalling a softer deterioration in the health of the sector. The index was at a four-month high, moving closer to the 50.0 mark that separates expansion from contraction. The improvement in the headline index was supported by the weakest fall in new orders in the current four-month sequence of reduction. While many panellists continued to report poor market conditions, others saw downward pressures fade and demand strengthen. Foreign orders also declined at a slower pace. Nevertheless, output at Egyptian firms contracted at a slightly faster rate in December. The drop remained marginal though. Encouragingly, purchasing activity expanded at the strongest pace in seven months, as a number of firms scaled up input buying in response to new business gains. Employment declined modestly in December, completing a full quarter of job cuts. Anecdotal evidence pointed to a number of retirements and people leaving for other roles. Despite this, the level of outstanding business grew only fractionally and at the weakest rate in six months. Input cost inflation eased further in December, setting a new record low across the survey history. This was largely due to the softest uptick in purchase prices in over six years. Salaries continued to grow solidly, albeit at a weaker pace compared to November. Concurrently, output prices increased only marginally, although the rise was slightly faster than November's 34-month low. Sentiment remained relatively subdued across Egypt's non-oil private sector in December. Most companies expect output to be unchanged in the coming 12 months, while 24 per cent forecast an improvement, with a few planning to grow their business. The respective index was at its second-lowest mark in 26 months. Output Output at Egyptian non-oil private sector firms contracted for the fourth month in a row in December. The respective index dropped slightly from November's reading, indicating a quicker decline in activity. Respondents again mentioned that poor market conditions precipitated a fall in demand and there were reports of a lack of liquidity at some firms. New Orders Egyptian firms reported a fourth successive retraction in new business in December. That said, the overall decline was fractional and the least marked in this period. Of the panellists who saw a fall in sales, weakening market conditions were reported. On the other hand, some firms noted an increase in market activity and new contracts. Export Orders New export orders declined at the end of the fourth quarter, extending the recent trend of deterioration in foreign demand to four months. Nevertheless, the drop remained marginal, with nearly 93 per cent of respondents seeing export volumes remain level with November. Anecdotal evidence pointed to poor conditions in both domestic and external markets as a drag on external sales. Backlogs of Work The seasonally adjusted Backlogs of Work Index dropped to a six-month low in December, signalling the weakest rise in outstanding business at Egyptian firms during the current sequence of expansion. Some firms indicated that a lack of liquidity and customs problems stopped them from fulfilling orders, while a lack of new contracts enabled others to clear work-in-hand. Suppliers' Delivery Times Suppliers' delivery times lengthened slightly in December, following a two-month period of performance improvements. Month-on-month changes have been marginal recently, with the vast majority of firms (97 per cent) reporting no change in the latest period. Notably, the respective index stayed above its average. Employment Employment at Egyptian non-oil private sector firms fell modestly in December. The rate of decline was slower than in November, with the respective index rising for the first time in four months. Of the 9 per cent of panellists that reduced staffing, many attributed this to positions vacated by retirees and those looking for other jobs, although a few firms dismissed employees as well. Output Prices After falling to a 34-month low in November, the seasonally adjusted Output Prices Index rose slightly in December, signalling a marginal increase in charges. This represented the first uptick in output price inflation since July. Some companies hiked charges due to rising costs, while others offered discounts to attract clients. Overall Input Prices Cost inflationary pressures eased further in December, as seen by the respective index sliding to a new low. Egyptian firms have seen input price inflation weaken for five months running, with only 9 per cent of panellists reporting higher costs during the latest survey period. The moderation was driven by a combination of weaker increases in purchasing and staff costs. Purchasing Prices Egyptian non-oil private sector firms experienced the slowest increase in purchasing prices in close to six-and-a-half years in December. The rise was the third-weakest across the series history, with roughly 8 per cent of respondents reporting higher purchase costs. Anecdotal evidence pointed to a rise in raw material prices, electricity bills and the exchange rate value of the dollar. Staff Costs Salaries increased solidly at the end of the fourth quarter, in line with the rates of inflation seen in recent months. That said, the seasonally adjusted Staff Costs Index was slightly lower than in November, signalling a marginally softer uplift. The rise in wages was also fractionally weaker than the average seen across the year. Quantity of Purchases Purchasing activity at non-oil private sector Egyptian firms rose modestly in December, although this represented the strongest expansion in buying levels for seven months. Some firms noted that an increase in business requirements during the latest period led to stronger purchases. Nevertheless, most companies (83 per cent) did not raise input buying. Stocks of Purchases Stocks of inputs rose moderately in December, completing a whole quarter of growing inventories at Egyptian firms for the first time in four years. Moreover, the latest expansion was the fastest seen since November 2014. That said, most panel members (96 per cent) kept stocks unchanged from the levels recorded midway through the fourth quarter. Future Output Confidence remained relatively subdued at the end of the final quarter of 2018, with the respective index rising only fractionally from November's 25-month low. Exactly 24 per cent of Egyptian firms expect output to increase in the next 12 months, which they linked to planned business expansion and new contracts. Restricting optimism were concerns surrounding liquidity issues and challenging market conditions.
