Cairo – Mubasher: Egypt's non-oil private sector continues contraction in February 2024, hitting its lowest in 11 months, due to the drop in sales and the aggravated foreign exchange shortage.

The headline seasonally adjusted S&P Global Egypt Purchasing Managers’ Index (PMI) – an indicator of operating conditions in the non-oil private sector economy – declined from 48.1 in January to 47.1 in February, according to a report by S&P Global.

An increasing number of businesses saw an increase in input costs, as the drop in Suez Canal revenue exacerbated foreign currency shortages.

Demand conditions weakened substantially, as new order volumes fell at the fastest pace since last March. Domestic sales fared particularly poorly, hampered by rising inflationary pressures and ongoing supply-side challenges within the economy, while wholesale and retail firms saw the steepest decline in new business.

Inflationary pressures showed no signs of abating. In fact, cost inflation accelerated to reach its highest level in thirteen months amid major supply disruptions.

Suppliers were also severely impacted, with delivery times lengthening the most since mid-2022 as global supply chains struggled.

Firms had little choice but to pass on rising input prices, increasing their selling charges at the sharpest rate in over a year. Internal price pressures also grew through faster wage inflation to combat high living costs.

With demand faltering, firms scaled back output rapidly, recording the steepest contraction in just over a year.

David Owen, Senior Economist at S&P Global Market Intelligence, said: "According to government reports, Red Sea shipping disruption has roughly 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.”

"Notably, more than a third of surveyed companies saw their purchasing costs increase over the month, with most comments linking this to rising US dollar values on informal markets. Input and output price inflation both reached their highest levels for 13 months, putting increased pressure on customer spending power,” Owen added.

The economist concluded: “Despite Egypt's headline inflation rate dropping eight percentage points over the last four months, the latest results signal that it could reaccelerate in the near future, which looks likely to prolong the downturn and leave business confidence subdued.”

Earlier today, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) decided in a special meeting to increase the interest rates by 600 basis points (bps), or 6%.