(MENAFN - Daily News Egypt) Egypt's seasonally adjusted Emirates National Bank of Dubai (NBD) purchasing managers' index (PMI) retracted from 50.8 in April to 48.2 in May, signalling a moderate deterioration in the health of the sector after a slight improvement in the previous month, according to a report published by the bank on Monday.
The PMI–a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy–shows that output at Egyptian non-oil companies declined in May, thus ending the brief upswing recorded in April.
However, the report also indicates that the drop in activity was only modest as it was mostly related to falling sales amid low client turnout. Total new orders also dropped at a moderate rate in May.
'Egypt's non-oil private sector dipped back into contraction in May, as the Emirates NBD PMI fell from 50.8 in April to 48.2. The April reading was the first time since August last year that the index had returned an expansionary 50.0-plus reading, but as has become familiar over the past two years, it has failed to return consecutive positive results,' said MENA Economist at Emirates NBD, Daniel Richards.
Richards added that the private sector 'continues to bear the brunt of ongoing reform and economic efforts in Egypt, and will likely remain under pressure during the summer period. Meanwhile, easing price growth in recent months–CPI inflation fell to 13.0% year-over-year in April–has offered some respite, upcoming subsidy reforms and a renewed pause in the Central Bank of Egypt's cutting cycle mean that conditions will remain difficult for private firms.'
Following a two-month period of rising demand, the latest fall was slower than that recorded in February.
Regarding new export orders, it extended its run of decline to nine months as businesses are citing a lack of foreign contracts, according to the report.
Challenging operating conditions led businesses to reduce inventories during May, while some panellists are citing difficulties in holding high volumes of stocks as demand weakened.
Despite this, firms reported another fractional deterioration in vendor performance.
Moreover, employment rates also fell in May at the quickest pace since October 2017. This was mainly due to employees leaving their jobs for other companies, while price pressures remained relatively soft midway into the second quarter.
Despite accelerating from April, the rate of input price inflation was still notably weaker than most of the survey history. In fact, firms noted multiple price rises including metals, foodstuff, petrol, electricity, and water bills.
However, this did not deter companies from reducing output charges for the fourth time in five months.
Furthermore, expectations toward future output weakened slightly in May, as falling output weighed on business sentiment. Regardless, the overall level of confidence was still stronger than during late 2018.
According to Richards, the dip back below 50 was driven by both output and new orders, both of which saw moderate declines compared to the previous month, following expansions in April.
He added that, although the pace of growth in purchase costs has slowed in line with inflation, it will likely accelerate in the coming months as new subsidy reforms push up energy and fuel tariffs.
In turn, this will continue to squeeze firms' margins that is reflected in a drawdown in inventories and a fall in employment, which declined at the fastest rate since October 2017.
'Although private Egyptian companies will remain under pressure over the summer months, we maintain our outlook that conditions will improve. Stronger GDP growth should bolster demand, and some of the more difficult economic reforms are behind them. Survey respondents share our view, with 38% anticipating an increase in activity over the year,' Richards concluded.