Egypt's Purchasing Managers Index Plunges to Lowest Level in Two Years

The S&P Global said that the Purchasing Managers' Index (PMI) for Egypt that the non-oil private sector in Egypt is suffering the worst decline in business conditions in two years.

According to a statement by the index, issued on Wednesday, the Egyptian non-oil-producing economy witnessed its weakest performance in two years during the month of June, as companies witnessed a decline in demand due to the sharp rise in prices, the decline in the strength of the pound and the shortage of materials.

The index indicated the rapid rise in the costs of production inputs in nearly 4 years, which led to a noticeable acceleration in the rate of inflation.

The statement added that with new business dropping sharply and reports that adverse geopolitical conditions have reduced the availability of basic commodities, the companies has significantly reduced its activity and purchases of production inputs.

The PMI fell again from 47 points in May to 45.2 points in June, the lowest reading since June 2020 during the first wave of the coronavirus pandemic, and below the series average of 48.2 points. Two of the largest PMI components, production and new orders indices, fell to their lowest levels since the Q2 of 2020, posting marked contractions in both activity and sales.

Nearly a quarter of the companies surveyed saw a decline in new orders during the last survey period, amid numerous signs of a decline in customer demand due to rising inflationary pressures. The decline in sales was most noticeable in the manufacturing, wholesale and retail sectors, with a strong decline in the services sector.

By contrast, the construction sector has seen more stable economic conditions, with production and demand growing marginally. In Egypt, the PMI also indicated a significant increase in input costs during June, with exactly 45% of the companies surveyed seeing an increase in their expenditures since May.

Besides the root causes of inflation such as supply constraints, adverse geopolitical conditions and transportation costs, committee members noted that the continued depreciation of the pound against the dollar had led to higher import duties. In addition, employee wages rose at the fastest pace in eight months.

As a result, product prices rose at the strongest rate since February 2017, with monthly inflation increasing at the largest rate since April 2011. The rise in production input costs led non-oil producing companies to reduce their purchasing activity at the end of the second quarter.

Input purchases also fell at the fastest pace since the lowest level recorded in April 2020, which led to a strong decline in inventory volume. In the same vein, staff numbers were reduced, albeit at a modest pace and the slowest since March.

Egyptian companies continued to face supply constraints in June, as war in Ukraine and shutdowns in China exacerbated difficulties in obtaining raw materials.

The Purchasing Managers Index (PMI) is a measure of the prevailing direction of economic trends in manufacturing. The PMI is based on a monthly survey of supply chain managers across 19 industries, covering both upstream and downstream activity.

In Egypt, The S&P Global Egypt Purchasing Managers’ Index measures the performance of the non-oil private sector and is derived from a survey of 450 companies, including manufacturing, services, construction and retail. The Purchasing Managers Index is based on five inpidual indexes with the following weights: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stock of Items Purchased (10%).