Lay-offs in Egypt as economy continues to contract

Reuters/Mohamed Abd El Ghany

• Companies leave positions vacant
• Non-oil private sector struggles
• Foreign reserves increase slightly

Businesses in Egypt cut staffing levels for the first time in three months as inflationary pressures hurt demand, although foreign exchange reserves rose slightly, according to the central bank.

Egypt’s non-oil private sector contracted for the 35th consecutive month, according to the latest headline Purchasing Managers’ Index (PMI) survey from S&P Global.

However net foreign reserves rose slightly above $35 billion in October from slightly less than $35 billion in September, the central bank said on Sunday.

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Last week the China Development Bank (CDB) said it had injected ¥7 billion ($956 million) into Egypt’s central bank.

S&P said that, after two consecutive months of hiring, a drop in sales during October impacted companies and “led them to make layoffs and leave positions vacant”. 

It said that while the fall in employment was “modest”, it was at the fastest rate since February.

Overall Egypt’s PMI dropped from 48.7 in September to 47.9 in October, the lowest for five months. Any figure below 50 represents economic decline.

“The Egypt PMI pointed to the sharpest deterioration in non-oil business conditions for five months in October,” said S&P global economist David Owen.

New order intakes fell deeper into negative territory at the start of the fourth quarter, blamed on rising prices, currency weakness and supply problems.

As well as falling sales, sustained material shortages and price pressures further led to reduced activity. 

Weakness was concentrated on the manufacturing, construction and wholesale and retail sectors. Services bucked the trend and posted a slight expansion.

The output subindex climbed to 46.4 from 45.7 in September, while the subindex for future output expectations rose to 56.4, its highest in 10 months, from 53.0 in September.

“While cost pressures are still sharp, they have moderated somewhat over the course of 2023, providing some respite to firms,” said Owen.

On Sunday Fitch Ratings lowered Egypt’s long-term foreign-currency issuer default rating (IDR) to B- from B on increased financial risks and rising government debt.

“The downgrade reflects increased risks to Egypt’s external financing, macroeconomic stability and the trajectory of already-high government debt,” the ratings agency said in a report.

S&P last month lowered the country’s long-term sovereign credit rating to B- from B due to recurring delays in implementing monetary and structural reforms, which are worsening imbalances in the currency market.

Last month Moody’s also downgraded Egypt’s credit rating to “Caa1” from “B3”, citing high inflation and rising domestic borrowing costs.