Tawfiqiya shopping market in downtown Cairo. Ahram Online
According to S&P’s report on Egypt, this reading is the lowest since June 2020, during the first wave of the COVID-19 pandemic, and below the country’s average of 48.2.
“The Egyptian non-oil economy saw its weakest performance in exactly two years in June, as businesses saw demand slump in the face of sharply rising prices, a devalued pound and material shortfalls. At the same time, the latest PMI survey data signalled the quickest rise in input costs in almost four years, leading to a marked acceleration in the rate of selling charge inflation,” the report explained.
“With new business falling sharply and reports that geopolitical headwinds had reduced commodity availability, firms greatly reduced both their own activity and input purchases,” it added.
Two of the largest components of the PMI are the output and new orders indices, declined in June to their lowest levels since the second quarter (2Q) of 2020, experiencing marked contractions in both activity and sales, according to the report.
“Nearly a quarter of surveyed businesses saw a reduction in new order volumes over the latest survey period, amid numerous mentions of a drop in client demand due to rising inflationary pressures,” the report demonstrated.
David Owen, economist at S&P Global Market Intelligence, noted that Egyptian companies suffered from a sharp downturn in new business in June, leading to the strongest deterioration in economic conditions since COVID-19 measures were introduced in 2Q 2020.
“The sharp drop-off in demand came from rising inflation and tightening monetary policy, as the Central Bank of Egypt’s (CBE) decision in May to devalue the pound against the US dollar, in response to interest rate rises by the Federal Reserve, added to the cost of importing goods,” Owen said.
“Following this, businesses raised their selling charges at the fastest rate since February 2017, contrasting with only modest increases in the first five months of the year. The sharp uptick suggested that firms were ready to pass on a greater bulk of their costs to customers amid sinking hopes that discounts would help spur a demand recovery.”
Own also expounded that supply conditions remained weak as well and added to inflationary pressures, as companies signalled that raw material supplies were becoming increasingly difficult to secure.
“Combined with a sharp fall in output, companies responded by lowering their purchases to the greatest extent since April 2020. While the reduction may offset some cost pressures, the June PMI data shows that hawkish monetary policy in the US and a rising dollar value is likely to keep supply side inflation running high,” he added.
“The Fed’s latest rate rise of 75 basis points adds to these concerns, while the CBE’s decision to keep policy unchanged in June could put additional pressure on exchange rates.”
The report also indicated a significant rise in input costs during June, with about 45 percent of surveyed companies seeing their expenses rise since May.
In this respect, the report said that the inflationary pressure in Egypt is driven by supply constraints, geopolitical headwinds, and transport costs, as well as the devaluation of the Egyptian pound against the US dollar that led to higher import fees.
“In addition, staff wages rose at the fastest pace for eight months, as firms looked to compensate workers facing a higher cost of living. Subsequently, output charges were raised at the strongest rate since February 2017, with the month-on-month uptick in inflation being the largest seen since the survey began in April 2011,” it further explained.