Egypt’s PMI for non-oil business drops in November to second lowest mark since June 2020

Doaa A.Moneim , Monday 5 Dec 2022

Egypt’s Purchasing Managers’ Index (PMI) for the non-oil private sector dropped from 47.7 in October to 45.4 in November, marking the second lowest level since June 2020 and extending the current sub-50 sequence to two years, with readings below 50.0 indicating a contraction, Standard and Poor’s (S&P) Global said on Monday.

File Photo: An employee works with juice and milk products at a Juhayna factory on the outskirts of Cairo, Egypt. Reuters


In its report on Egypt, S&P explained that Egyptian companies in the non-oil sector experienced a marked contraction in operating conditions in November, as business activity and demand were undermined by inflationary pressures.

Egypt’s annual headline inflation accelerated to 16.2 percent in October to surpass the 15.7 percent mark registered in November 2018, according to the latest readings released by the Central Agency for Public Mobilisation and Statistics (CAPMAS).

The sector’s output fell at the sharpest rate since the initial COVID-19 lockdown in May 2020, as a strong depreciation of the Egyptian pound caused purchase prices to accelerate at the sharpest pace in over four years, read the S&P report.

Employment rates in the non-oil private sector increased in November for the fourth time in five months, while business confidence recovered slightly from October's low despite the rapid fall orders, the report added.

"Egyptian firms faced an immediate hit to demand from a rapid depreciation of the pound since late October, with the November PMI results signalling the worst drops in output and new orders since May 2020. Outside of the initial COVID-19 lockdown stage, the fall in activity was the quickest since the beginning of 2017,” economist at S&P Global Market Intelligence David Owen explained.

He added that the depreciation of the Egyptian pound against the US dollar led to a significant increase in prices of raw materials, which have already hiked due to import restrictions since early 2022.

“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. Notably, this proportion was three times higher than those registering an increase in their selling prices in November (14 percent), suggesting that most firms were shouldering the burden of rising costs as demand continues to worsen,” Owen noted.

He added that the latest downturn occured during an emergency two percent hike in interest rates and continued efforts to bring inflation down from its current four-year high of 16.2 percent.

The Central Bank of Egypt (CBE) hiked the key interest rates in October in an unscheduled meeting about a month before the anticipated meeting of the board of directors of the International Monetary Fund (IMF), expected in December, to discuss the fund’s staff-level report on Egypt. The meeting will decide on greenlighting a $3 billion loan for Egypt under a 46-month economic reform programme.

The S&P report expected demand to slow and commodity prices to descend over the medium term.

“Central to the downturn was a rapid decrease in business activity, as survey panellists reported that accelerated cost rises and falling new orders forced them to cut output. The rate at which activity declined was the sharpest for two-and-half years, and the most severe since January 2017 when excluding the initial phase of the COVID-19 pandemic. The rate of decline in new orders deepened in November amid reports of spending cuts by customers due to rapid inflation and elevated interest rates. Like output, new business fell to the greatest degree since May 2020. Export sales also decreased amid slowing global economic conditions,” read the report.

The report added that the latest decline in operating performance came due to the sharp depreciation of the Egyptian pound against the US dollar in order to enable the approval of a new IMF deal.

Accordingly, the purchase price inflation significantly sped up to a 52-month high, the report noted.

“Notably, over 42 percent 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 percent). Output charge inflation, nevertheless, quickened from the previous month, although the results signalled some hesitancy to raise charges as sales continue to fall,” according to the report.

As per the report’s survey, Egyptian firms were slightly more optimistic about future output in November, while their concerns about high inflation, rising interest rates, currency weakness, and the global economic slowdown remain.

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