Non-oil private sector activity started 2016 on a weak note as it remained in a contractionary mode for the fourth straight month, data released by Markits show. The PMI reading recorded 48.0 in January, a slightly lower reading than 48.2 in December. January reading is weaker than the 48.9 average of 2015 and 46.8 4Q2015 average.   Weak domestic, external demand continue to weigh on activity: Companies cited a weak economic environment behind the sustained contraction in output and new work. Panelists, therefore, mostly opted to run down their inventories rather than engage in new input purchases. New export order also fell at a sharp pace in January as security conditions in key export markets, including Libya, weighed down on Egypt’s export business.   Profitability pressured as companies absorb higher costs to secure customers: Numbers also point to profitability coming under pressures: Input prices continued to rise sharply in January, while output prices remained nearly unchanged as producers sought to secure clients. Panelists cited another depreciation by the USD-EGP as a reason for higher input costs, a factor we find surprising, given that the latest round of depreciation took place in October and was actually followed by a similar appreciation of the USD-EGP in November. The exchange rate was also largely stable on the parallel market. Higher costs were also driven by notable increase in wages, usually noticed at the beginning of the year.   We maintain our 3.7% real GDP growth forecast for FY2015/16: The January PMI reading comes with no surprises, as same factors continue to weigh on private sector economic activity. We, therefore, reiterate our real GDP growth forecast of 3.7% in FY2015/16, seeing growth, driven mostly by state investment spending, which is focused mostly on infrastructure and power sectors. We also see downside risks to our growth forecast, in light of the recent measures to curtail household credit and rationalise imports, as authorities aim to preserve limited foreign exchange liquidity and boost local manufacturers. (Markit, Mohamed Abu Basha)