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Monday, 9 May 2022

Inflation continues to dampen business activity in April

Egypt’s non-oil private sector continued to contract in April, buffeted by inflation that has been turbocharged by the war in Ukraine as well as by falling demand, according to the S&P Global purchasing managers’ index survey (pdf). Business activity contracted at a slightly slower pace during the month, with the index inching up to 46.9 from 46.5 in March — but remaining below the 50.0 mark that separates expansion from contraction. The index reflected “a solid deterioration in business conditions” that was the second-fastest in almost two years.

November 2020 seems a long time ago: This is the 17th consecutive month Egypt’s non-oil private sector has been in contraction since mounting a brief recovery from the shock of covid in 2020.

What they said: “Non-oil business activity in Egypt continued to fall sharply in April as businesses faced a further increase in material and energy costs due to the war in Ukraine and a devaluation of the EGP in late-March,” said S&P Global economist David Owen.

Inflation remains key: “Despite softening marginally, the rate of overall input price inflation was strong and remained above the average seen in 2021,” S&P Global said. Inflation almost doubled during 1Q 2022, reaching a near three-year high of 10.5% in March.

Employment saw its sharpest drop in a year, with firms holding back from making new hires as rising prices dented client demand.

Manufacturers continue to bear the brunt of adverse conditions: “Manufacturers remained the most exposed to these setbacks, with increased raw material prices and supply shortfalls leading to a solid cut in goods production.” Wholesalers and retailers also continued to feel the strain.

On the bright side: Construction activity and new work increased for the first time this year.

The outlook: more of the same. While confidence picked up from an all-time low in March, businesses expect price and supply issues to persist as the war continues, “resulting in another relatively downbeat outlook for business activity," Owen said.

The foreign press is taking note: Reuters covered the latest PMI release.

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