FX crisis, Suez Canal disruptions weigh on Egypt's non-oil private sector in February
Updated 3/5/2024 7:53:00 AM
Arab Finance: Egypt's non-oil private sector witnessed a significant contraction in February, marking its sharpest decline in over a year, according to the latest Purchasing Managers’ Index (PMI) survey data from S&P Global.
This downturn was primarily propelled by a deepening foreign exchange crisis and a notable slump in customer sales.
The latest PMI for the country’s non-oil private sector plummeted from 48.1 in January to 47.1 in February. This reading, the lowest in 11 months, underscores the severity of the economic challenges facing Egypt.
The reading is still below the 50-point threshold that separates expansion from contraction.
The survey revealed a surge in input costs for businesses, driven by a drop in Suez Canal freight volumes, exacerbating the existing foreign currency shortages.
Consequently, demand, output, and employment levels all experienced notable deteriorations, while output charges surged at their fastest pace since early 2023.
One of the most significant contributors to the downturn was the worsening of order book volumes, with new orders experiencing the steepest fall since March 2023. Domestic sales were particularly affected, grappling with rising price pressures and supply-side hurdles.
The adverse conditions were felt across various sectors, with wholesale and retail firms bearing the brunt of the demand slump. Furthermore, inflationary pressures soared, with cost inflation reaching its highest level in 13 months, driven by disruptions in Suez Canal trade and shortages of foreign currencies.
"Despite Egypt's headline inflation rate dropping eight percentage points over the last four months, the latest results signal that it could reaccelerate in the near future, which looks likely to prolong the downturn and leave business confidence subdued,” David Owen, Senior Economist at S&P Global Market Intelligence, said.
“Indeed, firms' expectations for the coming year remain mild, while faster cuts in employment and purchasing suggest they are planning for a prolonged reduction in output," Owen added.
The prolonged shipping disruptions also led to significant delays in supplier deliveries, prompting companies to pass on higher purchase costs to consumers. As a result, selling charges surged rapidly, recording their sharpest increase in 13 months.
Amidst these challenging conditions, hiring activity in the non-oil private sector witnessed a decline, with firms opting for layoffs and refraining from replacing departing employees.
Looking ahead, businesses maintained a cautious outlook for the next 12 months, anticipating continued economic difficulties.
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