Activity in Egypt’s non-oil private-sector contracted in June for the second consecutive month, though at a slower pace than in May, a survey showed on Wednesday.

The Emirates NBD Egypt Purchasing Managers’ Index (PMI) for the non-oil private sector strengthened to 49.2 in June from 48.2 in the prior month, but remained below the 50 mark that separates growth from contraction.

Egypt’s non-oil private sector has seen growth in only three of the past 12 months, according to the PMI.

June’s reading signalled “a softer deterioration in business conditions and one that was less marked than seen on average over the series history”, the report said.

Daniel Richards, MENA economist at Emirates NBD, said Egypt’s PMI average over the second quarter of 2019, at 49.4, was a marked improvement from the series average of 48.4.

Sub-indices for output and new orders, which account for over half the index’s weighting, also remained in contractionary territory but were higher than a month ago. Output came in at 49.0 in June, stronger than May’s reading of 47.9, while new orders rose to 48.6 in June from 47.8 a month earlier.

“Only 11% of respondents saw output decline, while 10% increased output. New export orders seemed to weigh down domestic activity, with very few firms registering an uptick in demand,” Richards said.

“The strengthening in the Egyptian pound over the past several months to levels last seen in March 2017 could potentially pose a challenge to export-oriented businesses.”

The pound has strengthened nearly 7% against the dollar since the beginning of the year.

“Optimism surrounding future output levels at Egyptian companies dimmed in June, with the respective index dropping to a five-month low,” the report said.

But the future outlook remained broadly positive, Richards said: “Overall, the future output index remained strongly positive, albeit less so than in May.

“Around a quarter of respondents anticipate an improvement in activity over the next 12 months, compared to just 3% expecting a deterioration,” he added.

“This chimes with our outlook for Egypt, where we expect a modest acceleration in GDP growth this year.”

Egypt is targeting growth of 6% in the 2019/2020 fiscal year, which began on Monday, slightly more than the 5.6% targeted in the 2018/2019 fiscal year.

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