Business activity in Egypt expanded in October for the third straight month, a survey showed on Tuesday, but the pace of growth slowed, highlighting the fragile nature of the country's nascent economic recovery.
Egypt has been hit by more than three years of political and economic turmoil following the 2011 uprising that toppled Hosni Mubarak after 30 years in power.
The government is trying to strike a balance between cutting its deficit whilst reviving economic growth, which at 2.2 percent in the 2013/14 fiscal year remains too slow to create enough jobs for a youthful population of 86 million.
Though output and new orders both continued to expand last month, they grew at a much slower pace. Employment, which grew in September for the first time in 2-1/2 years, continued to rise last month, but also at a slower rate.
At the same time, inflationary pressures stoked by a major reduction in government subsidies to the energy sector in July eased significantly, suggesting the effects of the reforms on prices would be short-lived.
The HSBC Egypt Purchasing Managers Index (PMI) for the non-oil private sector stood at 51 points in October, down from a near-record 52.4 points in September and 51.6 points in August, but still showing growth.
Readings above 50 indicate expansion while those below 50 point to contraction.
"The pace of growth is still muted, but the PMI score points to the Egyptian economy starting to find its feet," Simon Williams, Chief Economist for the Middle East at HSBC, said.
"As confidence improves, we remain optimistic that the economy will continue to expand into the year-end, albeit off a low base."
Employment Returns to Growth
Egypt raised fuel prices by up to 78 percent in July in a long-awaited step to cut energy subsidies and ease the burden on the government's swelling budget deficit.
The cuts pushed up prices and hit business activity in July, but the effects appear to have been short-lived, with the pace of economic activity picking up in the three months since.
Egypt is targeting economic growth of up to 5.8 percent in the next three years, with the deficit staying at around 10.5 percent of gross domestic product (GDP).
The PMI survey of around 350 private-sector firms showed that output grew at a slower pace in October, with the related sub-index at 51 points compared to 53.3 points in September.
The sub-index for new orders stood at 51 points in October, slowing from a nine-month high of 53.8 points in September.
The new export orders sub-index stood at 51.7 points, also easing from September's 52.4 points.
In one of the most significant trends, however, Egypt continued to create more jobs in October, with the sub-index at 50.8 points, slowing only slightly from the previous month when hiring grew at the fastest rate since records began in 2011.
Non-oil private sector firms had been shedding jobs since May 2012, with one month of stability at 50 points in July.
Input prices rose sharply, with the index at 58 points, squeezing company profits, but the pace of increase eased from 61 points, 63.8 points and 67.8 in the previous three months.
Selling prices began to stabilize in October, however, with the output price index at 50.5 points versus 51.5 points the previous month.
