Business activity saw “solid deterioration” in February: Egypt’s non-oil private sectoractivity contracted at its sharpest rate in over a year last month as inflationary pressures have continued to dampen domestic demand and Red Sea shipping disruptions have taken their toll on Suez Canal revenue, exacerbating the FX shortage, according to S&P Global’s Egypt Purchasing Managers’ Index (pdf)

In numbers: The index fell to 47.1 in February down from 48.1 in January, logging an 11-monthlow and remaining below the 50.0 threshold that separates growth from contraction for the 39th straight month.

Caught in the middle of the wider Middle East crisis: “Red Sea shipping disruption hasroughly halved Suez Canal revenues so far in 2024, which February PMI survey data indicated had a considerable impact on foreign currency inflows and inflationary pressures,” S&P Senior Economist David Owen wrote. Disruptions have also hindered supplier delivery times, which have seen their longest delays since June 2022.

Refresher: Suez Canal receipts fell 47% y-o-y to USD 428 mn in January as the number ofships passing through the waterway dropped almost 37% to 1.4k thanks to Houthi attacks on vessels passing through the Red Sea.

Tourism has also taken a hit: There are indications from correspondents that Israel’s war on Gaza has hit Egypt’s tourism activity, Owens added. That being said, tourist arrivals in the first 40 days of the year were up 5% from the same period last year.

Higher prices, lower demand: Rising prices and dampened demand across all monitored sectors drove new orders to fall at their fastest rate since March 2023. “More than a third of surveyed companies saw their purchasing costs increase over the month, with most comments linking this to rising USD values on informal markets,” Owen wrote. Businesses opted to pass the rising cost burdens onto their customers, pushing input and output price inflation to the highest level in 13 months.

Businesses still expect a bumpy road ahead: Surveyed companies gave a “relatively subdued” forecast for business activity over the coming 12 months, with workforce numbers falling at their quickest pace since October. “The latest results signal that [Egypt’s headline inflation rate] could reaccelerate in the near future … Faster cuts in employment and purchasing suggest [firms] are planning for a prolonged reduction in output,” Owen said.

The report also got ink from Reuters.

FROM THE REGION-

  • Saudi growth bounces back: Output and new order growth led Saudi Arabia’s PMI torebound at its fastest rate in five months to 57.2, after hitting a two-year low of 55.4 in January, according to its PMI (pdf).
  • UAE maintains growth run: The UAE’s non-oil economy continued to see “strongupwards momentum” as output levels rose at their sharpest rate since mid-2019. The country’s PMI recorded 57.1 in February, up from 56.6 in January, S&P’s PMI (pdf) showed.
Tags: