Egypt's PMI inches down to 48.7 in October

CAIRO – 3 November 2021: IHS Markit Egypt Purchasing Managers’ IndexTM (PMI) recorded 48.7 in October, down from 48.9 in September.

The data revealed that the Egyptian non-oil private sector faced a widening of the supply chain crisis in October, as a lack of inputs led to a solid contraction in output and the sharpest increases in both costs and charges for just over three years. Export sales fell at the fastest pace in 17 months, although an ongoing recovery in local sales meant that demand conditions remained relatively buoyant.

It added that there were growing concerns among firms that supply disruption will intensify in the coming months and potentially limit the economic recovery, leading to a substantial fall in output expectations from September's record high.

"The Egyptian non-oil sector's recovery was stemmed in October as supply chain problems worsened around the globe. Having previously been less impacted than Europe and other regions, Egyptian firms started to feel the burden of material shortages on both output and inventories, with the latter decreasing at the sharpest rate in 16 months. This will likely spill over into further reductions in output by the end of the year,” Economist at IHS Markit, David Owen, stated.

Owen added that costs related to the purchasing of inputs meanwhile rose at the quickest pace since August 2018, pushing companies to mark up their selling charges to the greatest extent in the same time period. Inflationary pressures were spread across a vast array of inputs, including metals, plastics, wood products and construction materials, plus rising freight costs. “This suggests that businesses and consumers will struggle to avoid price rises in the months to come."

PMI showed that the pace of contraction quickened to the fastest since April and was solid. Additionally, stocks of inputs fell to the greatest extent since June 2020, as firms commented on the need to withdraw from their inventories to support business activity.

“With supplies running short, and shipment delays widening, companies raised their input buying for the third month in a row during October. They also faced a sharp rise in purchase prices, with metals, plastics, packaging and building materials all cited as up in price. In fact, the rate of purchase price inflation was the fastest since August 2018, resulting in the sharpest increases in both input costs and output charges over the same time frame,” it noted.

However, demand conditions in the non-oil economy remained relatively strong in October. Many firms continued to report an improvement in sales, particularly in tourism hotspots, though rising output prices did hinder demand in some areas. Export markets were weak despite latest data indicating the quickest fall in foreign orders since May 2020, which led to a marginal reduction in total new orders.

The data pointed out that the strength in labour markets was also highlighted by the latest survey, as employment numbers picked up to the greatest extent in two years. Panellists often commented on the need to boost staff capacity following the pandemic. Despite this, backlogs of work increased for the third time in four months amid input shortages.

Worsening supply chain disruption appeared to weigh more heavily on firms' projections for future output in October. After climbing to a record high in September, the respective index saw its largest ever monthly decline of over 20 points, bringing expectations down to the lowest since April. Firms were particularly concerned that high inflation could lead to a slump in demand and reverse the economic recovery seen since COVID-19 restrictions were eased, according to the data.