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Downturn of Egypt's non-oil private sector continues in June: NBD Egypt PMI Hopes for a stronger recovery heavily depend on a solution to the ongoing foreign exchange liquidity crunch, says Emirates NBD senior economist
The downturn in Egypt's non-oil private sector showed few signs of being abated through mid-2016, according to the Emirates NBD Egypt Purchasing Managers Index (PMI) issued Sunday. The PMI is a survey sponsored by Emirates NBD and produced by Markit. The survey showed that business conditions worsened for the ninth consecutive month, driven by ongoing declines in output and new orders, as well as underemployment. It attributed the recent decline to the crash of the EgyptAir flight MS804 into the Mediterranean Sea that caused tourism to further decline and contributed to marked reduction in new business from abroad. The survey panellists noted that higher prices are a factor restricting demand, as input costs rose at a record pace, while the rate of charge inflation was also sharp due to the weakness of the Egyptian pound against the US dollar. Senior economist at Emirates NBD Jean-Paul Pigat said that June's survey sees that the Egyptian economy continued to slow at the end of fiscal year (FY) 2015/2016, with the tourism sector appearing particularly weak. Pigat added that as of the beginning of the new fiscal year in July, hopes for a stronger recovery heavily depend on a short-term solution to the ongoing foreign exchange liquidity crunch. The index itself falls below the crucial 50-point mark for the ninth consecutive month, as output, new orders, and employment witnessed a remarkable drop. The weakness of the Egyptian pound also led the survey to register a record high in input costs. PMI—a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy—recorded 47.5 points in June compared to 47.6 in May. The survey pointed out that the non-oil private sector downturn has now stretched to a nine-month period, although the contraction rate has reduced slightly over the second quarter (Q2). The Q2 average of 47.3 points was marginally higher than those seen in Q1 2016, which recorded 46.9, compared to Q4 2015 that recorded 46.8. The survey claimed that the deteriorated business conditions were driven in part by further declines in output and new business during June, as both fell simultaneously for the ninth month in a row. According to the survey panellists, activity dropped due to weak demand by clients, both domestically and abroad. Some firms in the survey referred to a downturn in the tourism industry on the back of the EgyptAir flight MS804 crash, along with ongoing uncertainty regarding the exchange rate, which contributed to a decline in new export business. Moreover, respondents mentioned sharp inflation as a factor behind the fall in new business overall, thus purchasing costs rose at the fastest pace during the period over which the survey was conducted.
