Egypt’s non-oil private sector experienced a significant downturn in February, marked by deteriorating business activity, output, and employment. The latest PMI survey data from S&P Global reveals that a worsening foreign exchange crisis and a sharp drop in customer sales have contributed to the sector’s challenges, resulting in the sharpest contraction in just over a year.
The seasonally adjusted S&P Global Egypt Purchasing Managers’ Index (PMI) dropped from 48.1 in January to 47.1 in February, indicating a steep deterioration in the health of the non-oil sector. This reading, the lowest in 11 months, reflects the adverse impact of declining demand, output, and employment on the sector’s overall performance.
Factors impacting growth
The survey highlights several factors contributing to the downturn of Egypt’s non-oil sector. First, Egypt’s non-oil firms highlighted a decline in order book volumes in February. Moreover, a sharp decline in Suez Canal freight volumes exacerbated foreign currency shortages. This led to an increase in input costs. Additionally, domestic sales suffered amid rising price pressures and supply-side challenges. Moreover, wholesale and retail firms experienced the steepest decline in demand.
The disruption in shipping, particularly in the Red Sea, has led to significant challenges in the supply chain, thus impacting Egypt’s non-oil sector. Import prices rose substantially, contributing to a notable increase in purchasing costs. Moreover, the increase in supplier delivery times reached its highest level since June 2022, further exacerbating operational difficulties for businesses.
Inflationary pressures
Companies responded to higher purchase costs by raising selling charges. This resulted in the sharpest increase in selling prices in 13 months. Elevated inflationary pressures also impacted wages, with firms adjusting salaries to cope with the cost-of-living crisis. In response to the worsening demand environment, Egypt’s non-oil sector scaled back output levels significantly, contributing to the sharpest contraction in over a year.
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Employment
Hiring activity declined midway through the first quarter in Egypt’s non-oil sector. Workforce numbers decreased at the quickest pace since last October. Companies cited both layoffs and the non-replacement of leavers as contributing factors. Despite expectations of challenging economic conditions in the foreseeable future, business confidence improved slightly from January, indicating a cautious optimism among firms.
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