Industrial production falling, raising questions about future growth

Production in Egypt’s manufacturing and extraction industries slowed by 7.8 percent in January,  reaching 106.5 on the production and manufacturing index compiled by state statistics agency CAPMAS.

This is the latest in a series of reports suggesting a slowdown in Egypt’s industrial activity. The industrial sector was a major factor behind the high GDP growth rate of 5.6 percent in the first half of the 2014/15 fiscal year.

The CAPMAS production index measures the output of Egypt’s non-petroleum manufacturing and extractive industries against their performance in the 2006/7 fiscal year.

The index peaked at 129.44 in June 2014 before dropping to 105.73 in July, reflecting a typical drop in production during Ramadan. By November, the index had recovered to 118.27, before beginning to decline again, hitting 115.6 in December and 106.5 in January.

A related production index compiled by the Ministry of Planning, which measures a wider variety of industries including tourism and construction, has followed a similar pattern.

According to calculations by global analysis firm Focus Economics, industrial production as measured by the Ministry of Planning expanded at an average rate exceeding 20 percent year-on-year from July to December 2014. In January 2015, year-on-year growth contracted by 5.3 percent. This, the firm says, “suggests that the economy has cooled after a period of catching up.”

HSBC’s Purchasing Manager’s Index, which measures operating conditions in Egypt’s non-oil private sector, also began to decline in January 2014, after showing positive growth from July to December of 2014.

In March, the Purchasing Manager’s Index hit a 17-month low.

Tourism, a major driver of growth in the first quarter of the 2014/15 fiscal year has also been in decline since November 2014.

Government figures put GDP growth at 6.8 percent for the first quarter of the fiscal year, which spanned July-September 2014, and at 4.3 percent for the second quarter, which ended in December. The third quarter will come to a close on Tuesday.

The government is anticipating an annual growth rate exceeding four percent for the entire 2014/15 financial year.