CAIRO - 4 March 2024: Egypt's Purchasing Managers' Index (PMI) fell to its lowest level in 11 months, reaching 47.1 in February, down from 48.1 in January, according to the S&P Global Egypt PMI report. The decline was primarily attributed to disruptions in the Suez Canal, which resulted in higher input costs for businesses and exacerbated foreign currency shortages.
The decrease in freight volumes through the Suez Canal, caused by attacks on ships affiliated with Israel by Houthi forces since October 2023, has severely impacted global trade. These incidents have not only affected the Suez Canal but also led to a significant increase in ship freight prices.
Chairman of the Suez Canal Authority (SCA), Osama Rabie, revealed that the prices of shipping containers rose from $750 to $6,800 as a result of these attacks.
Furthermore, the disruptions in the Red Sea have had a substantial impact on the Suez Canal's revenues. In January 2024, the canal's revenue plummeted by 46.7%, amounting to $428 million, compared to $804 million in January 2023, as disclosed by Rabie.
The latest PMI reading indicates a notable decrease in demand, output, and employment levels across various sectors of the Egyptian non-oil economy. New orders fell at the fastest rate since March 2023, with domestic sales performing particularly poorly due to rising price pressures and supply-side challenges. Wholesale and retail firms experienced the steepest decline in demand.
"Egypt's non-oil economy appeared to suffer markedly in February as it found itself caught in the middle of the wider regional crisis. Red Sea shipping disruptions have roughly halved Suez Canal revenues so far in 2024, as indicated by the February PMI survey data, impacting foreign currency inflows and inflationary pressures," commented David Owen, Senior Economist at S&P Global Market Intelligence.
The survey also revealed that cost inflationary pressures increased to their highest level in 13 months. The decline in Suez Canal trade, caused by Red Sea shipping disruptions, exacerbated shortages of the US dollar and other foreign currencies. Consequently, import prices rose significantly, leading to a substantial increase in purchasing costs for over a third of the surveyed firms. Supplier delivery times were also affected due to the shipping disruptions, with longer delays reported since June 2022.
Owen further noted, "Notably, more than a third of surveyed companies saw their purchasing costs increase over the month, with most comments linking this to rising US dollar values on informal markets. Input and output price inflation both reached their highest levels for 13 months, putting increased pressure on customer spending power."
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