As 2024’s first quarter came to a close, Egypt’s non-oil private sector faced ongoing challenges with a decline in demand due to volatile currency markets and soaring prices. The headline seasonally adjusted S&P Global Egypt Purchasing Managers’ Index (PMI) revealed that business activity and new orders fell at a similar rate to February. However, recent policies supported input prices, which led to a less severe increase in March. This also supported the increase in output charges.
The country’s PMI increased from 47.1 in February to 47.6 in March. While this uptick suggests a softer decline, it still indicates a significant deterioration in the sector’s health. The PMI remained below the long-term average, signaling ongoing challenges.
Sharp decline in non-oil activity
March saw a sharp decline in activity across Egypt’s non-oil private sector, with weak order books and inflationary pressures taking their toll on output and confidence. The downturn was only marginally better than February’s nadir, marking the second-strongest decline in 14 months. The slump in demand persisted, with new order volumes experiencing a notable decrease.
The weak exchange rate of the pound against the U.S. dollar, coupled with general price uncertainty, continued to impact client spending negatively. However, there was a silver lining as higher foreign demand supported the first increase in new export orders since December 2022.
“Businesses in Egypt’s non-oil private sector continued to come under pressure from the country’s recent currency crisis in March. The sharp fall in Suez Canal activity due to the Red Sea crisis led to a marked drop in US dollar inflows in February, causing exchange rates and inflation to spiral upwards,” stated David Owen, senior economist at S&P Global Market
Intelligence.
Market sentiment
Sentiment towards future activity in Egypt’s non-oil private sector dipped in March, reaching some of the weakest levels in the survey’s history. While firms expressed some optimism about the next 12 months, concerns lingered regarding the possibility of prolonged economic depression and further declines in sales.
“Firms are still lacking confidence that activity will grow over the year ahead, suggesting that economic risks may take more time to disappear,” Owen added.
Relief in price pressures
Despite ongoing challenges, recent measures to combat Egypt’s currency crisis, such as raising interest rates and floating the Egyptian pound, provided some relief from price pressures in Egypt’s non-oil private sector. The rate of overall input price inflation dropped to a three-month low, with some firms benefiting from improved local market exchange rates. Average output prices increased at the slowest rate in three months but still much faster than the long-run trend. Moreover, the surging cost-of-living pressures led to the strongest increase in wages since October 2020.
Read: IMF ties Egypt’s $8 billion loan disbursement to currency flotation
Purchasing and vendor performance
Purchasing activity in Egypt’s non-oil sector continued to decline in March, primarily due to lower new work inflows and higher prices. Shipping issues and material shortages exacerbated the situation, contributing to a further decline in vendor performance.
In a positive development, businesses increased staffing levels for the first time in 2024, offsetting the decline in February. This slight uptick also contributed to a fractional drop in backlogs of work, marking the first decrease since last June.
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