The private sector in Egypt continues to shrink due to the Gaza war and inflationary pressures

Non-oil private sector activity in Egypt continued to decline for the 38th consecutive month last January, as inflation pressures and the war on Gaza hit demand, according to a survey today.

The Standard & Poor's Global Purchasing Managers' Index in Egypt fell to 48.1 points from 48.5 last December, below the 50 level that separates growth from contraction.

production contraction

“The decline continued with a significant contraction in output and new orders last January, amid signs that rising prices are still weakening consumer demand,” Standard & Poor's Global said.

Data from the Central Agency for Public Mobilization and Statistics in Egypt indicate that consumer price inflation in Egyptian cities declined by 33.7% on an annual basis in December last year, from 34.6% last November, and from 34.6% last September. There was a historical increase of 38%.

David Owen, economist at Standard & Poor's, said, “Some companies indicated that the conflict between Israel and Gaza and associated geopolitical tensions have had a negative impact on tourism activity, which could result in non-oil economic growth during the next few months. “There will be further difficulties for the activity.”

The sub-index for new orders fell to 46.4 from 46.9 last December, while the production sub-index fell to 46.6 from 46.7.

The business confidence sub-index fell to 52.1 from 55.1 last December, but that is still higher than last November's reading of 50.9, which was its lowest level since the index's inception in 2012.

Earlier, Fitch Ratings had said that the broader consequences of the conflict in the Gaza Strip increase the risks facing neighboring countries, especially Egypt.

At the time, the agency expressed confidence that foreign partners might be willing to increase support for Egypt in response to fallout from the conflict, and hoped that its International Monetary Fund program would be expanded.

fund agreement

Egypt and the International Monetary Fund agreed on key policy elements of an economic reform program, according to a statement issued last Friday, in a new sign that a final agreement to extend the country's $3 billion loan is nearing completion.

Ivana Vladkova Hollar, head of the International Monetary Fund's mission in Egypt, said the two sides had achieved “excellent progress” in discussions on a comprehensive policy package that could launch a long-awaited review of the country's economic reform program.

He added, “To this end, the IMF team and Egyptian officials agreed on the key policy elements of the program. Officials expressed their strong commitment to moving forward rapidly on all key aspects of Egypt's economic reform program.”

Egypt held two weeks of talks with the IMF to revive and extend the loan agreement, which was signed through December 2022.

The fund suspended distribution of debt shares last year after Egypt did not fulfill its pledge last March to fix the exchange rate of the pound to the dollar and allow market forces to determine its exchange rate.

The exchange rate has since been fixed at 30.85 pounds per dollar, while the dollar is trading at just above 50 pounds on the black market.

Hollar said discussions will continue virtually to determine the amount of additional assistance needed to help fill Egypt's growing financing gap from the International Monetary Fund and other bilateral and multilateral development partners in the context of the recent shocks.

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