RIYADH: Egypt’s non-oil businesses witnessed a marked contraction in operating conditions in November, resulting in output falling at the sharpest rate since the early pandemic as the country continues to face inflationary pressure amid the weakening Egyptian pound, according to S&P Global.
The impact of this was visible in Egypt’s Purchasing Managers’ Index which fell from 47.7 in October to 45.4 in November — the second lowest since June 2020, the report noted.
The rating agency said that the new low extends the current sub-50.0 sequence to two years.
The key reason for this downturn was a rapid decrease in business activity, with S&P research revealing that companies were forced to cut output as they faced accelerated cost rises.
“Egyptian firms faced an immediate hit to demand from a rapid depreciation of the pound since late October, with the November PMI results signaling the worst drops in output and new orders since May 2020,” said David Owen, an economist at S&P Global Market Intelligence.
He said the pound's depreciation against the US dollar led to a marked increase in prices paid for raw materials, which have already been exacerbated by import restrictions since early 2022.
According to S&P Global, Egypt’s purchase price inflation hit a 52-month high, leading 42 percent of surveyed firms to report a rise in total input costs over the month.
While new orders continued to fall rapidly for firms, Egypt saw employment levels still expanding for the fourth time in five months as business confidence recovered slightly from October's series low.
But S&P said the rate of decline in new orders deepened in November, amid reports of spending cuts at customers due to rapid inflation and elevated interest rates.
"The latest downturn also came in the midst of an emergency 2 percent hike in interest rates, amid continued efforts to bring inflation down from its current four-year high of 16.2 percent,” said Owen.
While the latest FX move signals a further rise in inflation in November, he said it is hoped that slowing demand and falling commodity prices will start to alleviate price pressures in the medium- to long-term.
Looking ahead, the report noted that Egyptian firms were slightly more optimistic about future output in November, albeit following a series record low in October. However, it added that concerns about high inflation, rising interest rates, currency weakness and a global economic slowdown remained dampeners on sentiment.
