Conditions in Egypt’s non-oil economy deteriorated sharply in January as a steep devaluation of the pound heaped more price pressures on businesses, prompting them to trim activity, buying and jobs.
(Bloomberg) — Conditions in Egypt’s non-oil economy deteriorated sharply in January as a steep devaluation of the pound heaped more price pressures on businesses, prompting them to trim activity, buying and jobs.
The Purchasing Managers’ Index compiled by S&P Global, which measures the performance of the private sector, fell to 45.5 from 47.2 in December, remaining below the 50 mark that separates growth from contraction for a 26th month. The decline was one of the sharpest in that series.
Output prices rose at their quickest pace in about six years, while purchase-cost inflation reached a four-and-a-half-year high. Some companies said import restrictions caused further supply shortfalls, hindering activity and contributing to a sustained rise in work backlogs, according to the report.
Amid steep drops in new orders and business activity, “firms made further cuts to purchasing and employment,” said David Owen, senior economist at S&P Global Market Intelligence. Input-buying was “again constrained by import controls and an ongoing shortage of US dollars.”
The pound, which has lost almost half of its value against the US dollar since March 2022, plunged roughly 18% last month alone in the latest sign that Egyptian authorities are allowing greater exchange-rate flexibility. A pledge to do so helped the North African country secure a $3 billion International Monetary Fund deal to shore up an economy tipped into crisis by Russia’s invasion of Ukraine.
Headline annual inflation hit 21.3% in December, with consumer prices expected to “remain elevated throughout much of the year,” Owen said. Figures for January are due later this week.
Business sentiment fell to its third-lowest level since the series began in April 2012, with inflation seen hindering demand in the months ahead, S&P said. Employment fell for the third time in four months, although firms took steps to increase wages amid higher living costs.
“The dollar shortage added significantly to Egypt’s economic challenges in 2022 and will likely remain a major problem this year,” Owen said.
–With assistance from Tarek El-Tablawy.
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