Business activity in Egypt’s non-oil economy continued to contract in April, albeit at a slower pace, as input costs rose and demand slowed amid global geopolitical tensions and supply chain disruptions.
The seasonally adjusted S&P Global Egypt Purchasing Managers’ Index rose to 46.9 in April from 46.5 in March. A reading above the neutral 50 mark indicates economic expansion, while below indicates contraction.
“Companies faced further increases in material and energy costs due to the war in Ukraine and a devaluation of the pound in late March,” said David Owen, economist at S&P Global, on the sharpest job cuts in exactly a year.”
Egypt, the most populous country in the Arab world, is suffering from rising import costs and energy prices, which have affected foreign exchange reserves in the Russia-Ukraine conflict.
The North African country, which is the world’s largest wheat importer, is heavily dependent on supplies from Russia and Ukraine, which together accounted for 86 percent of its $2.7 billion worth of wheat imports in 2020.
To mitigate economic shocks caused by supply chain disruptions and prop up foreign exchange reserves, Egypt recently introduced a 130 billion Egyptian pounds ($7.1 billion) aid package, hiked interest rates, severely weakened its currency and bid for support from the IMF.
The country’s Gulf allies also pledged up to $22 billion to help the country deal with the aftermath of Russia’s war in Ukraine.
The companies surveyed indicated a decline in domestic orders and export sales due to the lower demand. Input costs also rose due to higher energy prices and increased commodity prices, the survey showed.
Oil prices have risen sharply along with other commodities that contribute to rising inflation. Oil prices rose 67 percent last year amid a strong economic recovery and have risen further after the Russia-Ukraine conflict that threatens to disrupt global energy flows.
Brent, the benchmark for more than two-thirds of the world’s oil, slipped below $140 a barrel in March. MUFG Bank expects Brent to average $135 a barrel in 2022 if the war in Ukraine continues.
According to the survey, Egyptian firms are cutting their spending on materials and labor due to higher input costs. Firms also scaled back purchasing activity, leading to a “solid reduction” in average inventory levels, while job numbers fell at the fastest in a year as firms failed to fill vacancies on the back of cost pressures and lower demand.
“The continuation of the war in Ukraine has meant that companies anticipate further pricing and supply challenges, leading to another relatively bleak outlook for operations,” Mr Owen said Has.”
Updated May 08, 2022 2:32 p.m
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