Egyptian non-oil business conditions decline at fastest rate since early pandemic

Currency depreciation and an emergency 2% interest rate hike saw costs grow and output fall

Business conditions in Egypt declined at their fastest rate in November since May 2020 as the Egyptian pound depreciated strongly against the dollar and an emergency interest rate hike of 2% was imposed.

The latest purchasing manager’s index (PMI) report for the country revealed a headline index figure of 45.4, down from 47.7 in October, with anything below 50.0 indicating business conditions are deteriorating.

Purchase prices in the country rose at their fastest rate since 2018, with new orders falling, but employment levels increased for the fourth time in five months.

The S&P report said business activity and demand were undermined by inflationary pressures.

The reading was the second lowest since June 2020, with a rapid decrease in business activity, attributed by respondents to accelerated cost rises and falling new orders, which forced them to cut output.

The rate at which activity declined was the most severe since January 2017 if the initial phase of the COVID-19 pandemic is excluded.

Export sales also decreased amid slowing global economic conditions.

David Owen, Economist at S&P Global Market Intelligence, said: “While the latest FX move signals a further rise in inflation in November, it is hoped that slowing demand and falling commodity prices will start to alleviate price pressures in the medium- to long-term.”

The report added: “A clear factor behind the latest decline in operating performance was a sharp depreciation of the Egyptian pound against the US dollar, as the currency was floated to enable the approval of a new IMF deal.”

“Notably, over 42% of surveyed businesses saw their overall costs increase since October, three-times the proportion of firms that saw a concurrent rise in selling prices (14%).

“Output charge inflation nevertheless quickened from the previous month, although the results signalled some hesitancy to raise charges as sales continue to fall.”

The report said rising import costs and falling new orders prompted firms to rapidly cut input buying levels in November, while some mentioned utilising old stocks to meet demand, contributing to a slight reduction in total inventories.

Supplies were also hampered by a renewed lengthening of delivery times.

Despite increasing employment levels, the volume of backlogged orders increased again as some firms faced fresh disruption to supply chains from import restrictions.