Economy

Egyptian business confidence improves but pessimism remains

July 4, 2024, 11:38 AM

Workers at a textile factory in Bilbeis, Egypt. S&P Global says businesses may soon be able to expand their output

S&P releases latest PMI survey
Economy just shy of achieving growth
Businesses ‘on road to recovery’

Egyptian businesses reported significant new sales for the first time since 2021 in June but are still more pessimistic than optimistic, according to the latest purchasing managers index (PMI) report.

The survey released by S&P Global reported a headline PMI of 49.9, the highest in almost three years and just shy of the 50.0 mark that separates growth from contraction.

The survey has remained under 50 for 43 consecutive months, but in a note accompanying the survey, senior economist David Owen said that “businesses appear to be heading on the road to recovery”.

Newsletter
Get the Best of AGBI delivered straight to your inbox every week

“If we see further rises in sales and purchases in the second half of this year, firms should have the motivation and need to expand their output,” Owen said.

The report’s publication coincides with the formation of a new Egyptian cabinet, which saw 20 new appointees including to the ministries of finance and energy.

A new fiscal year which began on Monday introduced an austerity budget that aims to reduce Egypt’s debt-to-GDP ratio from above 90 percent to below 80 percent by 2027.

It follows a turbulent economic period marked by double-digit inflation and a shortage of foreign liquidity, exacerbated by a black market currency rate which saw the US dollar changing hands at more than double the official rate against the Egyptian pound at the start of the year.

Egypt’s economic situation has eased since a $35 billion investment deal was signed in March with ADQ, a UAE sovereign wealth fund, along with a devaluation of the pound and loan agreements from the International Monetary Fund and others.

The new government must now grapple with awkward decisions on selling off state-owned companies and lifting heavy subsidies on bread and fuel.

Thursday’s survey did not cite challenges accessing foreign currency, a problem frequently reported by Egyptian businesses even in the months after the March devaluation when the Egyptian pound depreciated 38 percent against the US dollar to $1=EGP49.5. The pound has since strengthened slightly to EGP47.9.

Egypt shows signs of recovery after landmark IMF deal

Deals between European and Egyptian companies worth $43bn

Sharia index is tentative step for Islamic finance in Egypt

Urban consumer price inflation dropped to 28 percent in May, down from a September peak of 38 percent; foreign reserves reached a record $46 billion the same month.

Goldman Sachs has predicted that inflation will drop 10 percent by June 2025, stabilising at around 10 percent by the end of that year.

"Price pressures have remained much cooler than in the first quarter of this year during the country's foreign currency crisis,” wrote Owen. “While June saw the fastest rise in input prices for three months, firms generally commented that this was due to a high degree of volatility in market prices rather than an accelerating inflation trend.”