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Egypt’s non-oil private sector contracted at the sharpest rate in just over a year in February, with the ongoing Suez Canal disruptions, the foreign exchange crisis and a steep drop in customer sales resulting in the country’s S&P Global Egypt Purchasing Managers’ Index (PMI) to deteriorate further in 2024.
Operating conditions in the sector dropped to 47.1 in February, down from 48.1 in the previous month, with anything below 50.0 indicating a decline in business.
According to PMI data, this is the lowest reading for Egypt in 11 months, pointing towards a worsening of order book volumes in February and further indicating a weakened economy.
New orders fell at the fastest rate since March 2023, with domestic sales faring poorly amid rising price pressures and supply-side challenges. Demand conditions remained weak, with wholesale and retail firms suffering the steepest decline.
The ongoing Red Sea shipping disruption resulted in a further drop in Suez Canal trade, exacerbating shortages of the US dollar and other foreign currencies, which were weighed down further by cost inflationary pressures that accelerated to their highest in 13 months.
Subsequent rises in import prices further led to a substantial increase in purchasing costs, which resulted in a rapid increase in selling charges, the sharpest in 13 months.
Elevated inflationary pressures were also seen with respect to wages, with salary inflation at its highest since last January.
David Owen, Senior Economist at S&P Global Market Intelligence, said: “Egypt’s non-oil economy appeared to suffer markedly in February as it found itself caught in the middle of the wider regional crisis. According to government reports, Red Sea shipping disruption has roughly halved Suez Canal revenues so far in 2024, which February PMI survey data indicated had a considerable impact on foreign currency inflows and inflationary pressures.”
With the demand environment worsening, firms scaled back their output levels rapidly in February, resulting in a decrease in purchasing activity to the greatest extent for five months as firms continued to avoid holding excess stocks.
“The resulting drop in sales was the quickest since last March, while activity was also rapidly curtailed. Reports from some panellists suggest that tourism activity is also struggling due to the Israel-Gaza war, and that domestic suppliers were hindered by shipping disruption,” Owen added.
Similarly, hiring activity in the non-oil private sector declined midway through the first quarter, with the latest data signalling a modest drop in workforce numbers that was nonetheless the quickest since last October. Firms cited both layoffs and the non-replacement of leavers.
Looking ahead, companies maintained a relatively subdued forecast of business activity over the coming 12 months in February, amid expectations that economic conditions will remain challenging for the foreseeable future.
Owen added that 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.”
(Writing by Bindu Rai, editing by Daniel Luiz)
