File photo of the World Bank - Reuters
In its report on Egypt’s Purchasing Managers’ Index (PMI) for the non-oil private sector, S&P said that business conditions in the sector remained under pressure from inflationary pressures, energy rationing, import restrictions and weak demand at the end of the third quarter of 2022.
“Latest PMI data pointed to further marked declines in private sector business activity, driven by a sharp drop-off in client demand amid high prices and growing uncertainty. Subsequently, businesses continued to reduce their purchasing activity and inventory holdings. Despite this, firms retained an optimistic view towards output growth in the year ahead and continued hiring activity, though sentiment was weak by historical standards. Unfavourable exchange rate movements against the US dollar, and price hikes for a range of inputs led to a quicker increase in overall input prices in September. Firms responded by lifting their selling charges,” the report explained.
Egypt’s PMI reading posted 47.6 in September, which is the same reading as in August. The two months’ values’, tied for the weakest in seven months, indicates a solid deterioration in business conditions, according to the report.
Meanwhile, new orders dropped significantly in September, marking the weakest rate for seven months, according to the report.
As per the report, the sector’s companies indicated that high prices and client hesitancy hampered demand.
Moreover, exports fell for the second month in a row at the steepest rate for over two years, the report noted.
"Non-oil activity in Egypt continued to suffer from weak demand, geopolitical tensions and surging inflation in the final month of the third quarter. The energy crisis – brought about by Russia's war on Ukraine – led to sharp uplifts in energy costs and the introduction of energy rationing policies. At the same time, unfavourable pound-dollar exchange rate movements added to already steep price pressures. As a result, clients held off from placing orders while those in international markets reduced their demand sharply with exports falling at the quickest rate for over two years. Firms nevertheless remain hopeful that macroeconomic conditions would improve in the medium-term, but for now, non-oil Egyptian businesses are challenged to operate in an environment which includes persistently high prices, weak demand and growing uncertainty,” Shreeya Patel, Economist at S&P Global Market Intelligence, illustrated.
For cost pressure the sector experienced in September, the report said that it came mainly as a result increased energy, material and wage expenses as well as the unfavourable exchange rate actions that contributed to rising expenses.
In addition, the overall input price inflation in the sector accelerated in September was marked and quickened to a three-month high, according to the report.
In this respect, the report said that companies has responded to higher costs by hiking their selling prices.
“Moreover, the rate of inflation was sharp and quicker than the long-run series average. Sustained declines in demand paired with growing cost burdens led non-oil firms in Egypt to scale back on their purchasing activity. Inventory holdings also fell in September, and for the fourteenth month in a row,” the report further explained.