Egypt's PMI records 2nd lowest level in 29 months

CAIRO - 5 December 2022: Egypt’s Purchasing Managers' Index (PMI), issued by the S&P Global Group, shrank to 45.5 points during September, compared to 47.7 points in October.

 

According to S&P Global data, this reading is the second lowest reading for the index since June 2020.

 

The reading of the index, which measures the performance of Egypt's non-oil-producing private sector, refers to growth when it’s above the level of 50 points and reveals contraction when it is below the 50 point level.

 

The main reason for the recession was the rapid decline in business activity, with companies participating in the study reporting that rapidly rising costs and declining new orders forced them to cut production.

 

The rate of decline in activity was the strongest in two and a half years, and the sharpest since January 2017, with the exception of the first phase of the Corona pandemic.

 

"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. Outside of the initial COVID-19 lockdown stage, the fall in activity was the quickest since the beginning of 2017,” David Owen, Economist at S&P Global Market

Intelligence, said.

 

Owen added that 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. 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.

 

He noted that 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.

 

"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. While the latest FX move signals a further rise in inflation in November, it is hoped that slowing demand and falling commodity prices will start to alleviate price pressures in the medium- to long-term,” he added.

 

The data showed that Egyptian companies suffered a noticeable contraction in business conditions during November, as commercial activity and demand were affected due to inflationary pressures.

 

Production decreased at the highest rate since the first closure due to COVID-19 in May 2020, as the depreciation of the pound led to an increase in purchase prices at the highest rate in more than four years.

 

One obvious factor behind the recent drop in trade performance was the depreciation of the pound against the dollar as the currency was floated to allow approval of a new deal with the International Monetary Fund, accelerating purchase price inflation to a 52-month high, according to data from the S&P Global.

 

Despite a rapid decline in new orders, employment levels rose for the fourth time in five months, while business confidence recovered slightly from October's low level.

 

On the employment front, Egyptian companies increased their staff numbers for the fourth time in five months during November, and at the fastest rate in more than three years.

 

Despite this, the order backlog increased again, with some companies reportedly facing new disruption to supply chains due to import restrictions.

 

Companies also reported a slight increase in wage costs, reflecting increased salaries due to the higher cost of living.