Business conditions in Egypt’s non-oil economy continued to deteriorate in May, as new import rules and the strengthening of the dollar combined with rising global commodity prices to reduce output.
New orders declined at the quickest pace in almost two years and input-cost inflation accelerated to a six-month high, according to a survey of purchasing managers by S&P Global.
Egypt’s requirement of letters of credit for imported goods led to customs delays, causing waiting times for inputs to lengthen for the seventh month, the survey found. Meanwhile, a ban on some foreign products in April, due to certification issues, “left several businesses searching for alternatives and having to reduce activity in the short run,” it said.
While S&P’s Global Egypt Purchasing Managers’ Index rose to 47 from 46.9 in April, it remained below the 50 mark that separates growth from contraction for the 18th straight month.
The dollar’s strengthening versus Egypt’s pound also added to “the burden of incredibly-high commodity prices from the war in Ukraine and the prevailing effects of the Covid-19 pandemic,” said David Owen, economist at S&P Global Market Intelligence.
Egypt’s central bank in late March allowed the currency, which had been stable for almost two years, to weaken more than 15%. It also raised interest rates for the first time since 2017, and then enacted a further 200 basis-points hike in May.
The latest rise “will make businesses more likely to rein in spending and investment until the current inflation wave has been crested,” said Owen.
“With conditions deteriorating, business confidence fell back to the second-lowest on record in May, signaling only mild optimism of a rise in activity over the coming year,” he said.
