Non-oil private sector activities in Egypt continued to shrink in February, now for seven consecutive months, despite a slight improvement compared to last month, according to a recent report issued by Prime Group.
The headline Purchasing Managers' Index (PMI) increased slightly to 47.1 from 46 points in January, which was the lowest level in almost three years.
Rapid recovery is not expected, especially amid the threats of the COVID-19 outbreak, according to the report prepared by Prime's investment research team.
The PMI measures the direction of economic trends in the manufacturing and service sectors.
The report also expected that the duration and magnitude of risks triggered by the Coronavirus outbreak may interrupt the Central Bank of Egypt's (CBE) easing cycle, while fiscal support likely over the short term.
"Weak consumer and business sentiments and the sharp effect of the COVID-19 turmoil on the global supply chain and the Chinese economy will keep our expectation of the headline PMI in the contraction territory for the first quarter of 2020.
The effect of COVID-19 is not fully reflected in February’s reading. The blow to the global supply chain, against the backdrop of the sudden economic stop in China, is still sending shock waves in terms of shortfalls in imported inputs despite the significant fall in global commodity prices," the report estimated.
Domestic firms may witness bottlenecks if they run out of inventory and face delays in procuring new stock from alternative destinations, especially that China’s merchandise exports account for 13.7 percent of global merchandise imports and around 15.3 percent of Egypt’s imports.
According to the report, the effect on new export orders is visible, as export sales remained in contraction since recovering in August 2019.
Meanwhile, weak labour market dynamics still rely on domestic demand.
"The employment index fell at the fastest rate since September 2017, indicating that the 'vicious cycle' of lower employment-lower sales-lower hiring will likely last for longer than we had originally expected," the report highlighted.