Egypt’s non-oil sector suffering under high inflation: Report

A leading credit rating agency released a dire report on the Egyptian economy Sunday. 

The New York-based S&P Global said Egypt’s Purchasing Managers’ Index fell from 47.2 in December to 45.5 in January. This was the sharpest drop since late 2020. 

“The reading indicated a sharp deterioration in the health of the non-oil sector that was one of the quickest seen in the current 26-month sequence of decline,” read the report. 

The Purchasing Managers’ Index (PMI) measures economic trends in manufacturing and other non-oil sectors. It is based on surveys of supply chain managers. A PMI of below 50 indicates economic contraction, according to Investopedia.

S&P Global said that new orders decreased significantly and inflation and the depreciation of the Egyptian pound further added to the non-oil sector’s struggles.

“New order inflows decreased at a marked and faster pace in the latest survey period, as firms widely highlighted that rising prices had limited client budgets,” the report read. “Inflation was driven higher by a rapid depreciation of the Egyptian pound against the US dollar, which compounded cost woes for domestic firms.” 

S&P Global economist David Owen added that inflation could “remain elevated” throughout 2023 due to the rising costs they observed, according to the report. 

Why it matters: Inflation is on the rise in Egypt. Annual headline inflation rose to 21.9% in December, up from 19.2% the previous month. The Central Bank of Egypt raised interest rates a few times in 2022 in an attempt to bring down inflation. The bank decided last week to not raise rates further. 

The Egyptian pound has also fallen considerably against the dollar in recent months. One US dollar equaled around 30.2 Egyptian pounds Monday. The dollar was worth around 15.7 pounds at the same time last year, according to the currency data website Xe. 

Egypt’s inflation is related to the supply chain shocks resulting from the Russian invasion of Ukraine. The pound depreciated significantly following the announcement of a $3 billion aid package from the International Monetary Fund last October. Maintaining a flexible exchange rate was one of the IMF’s conditions for Egypt. 

Know more: Despite the economic issues, the Egyptian Exchange started off 2023 as one of the best performing stock markets in the world, Marc Espanol wrote in an Al-Monitor PRO memo last month.