S&P Global Egypt Purchasing Managers’ Index (PMI) slipped from 48.1 in January to record 47.1 in February. This is because an increasing number of businesses experienced higher input costs due to a significant decline in freight volumes through the Suez Canal, which further aggravated foreign currency shortages.

There was a notable decrease in demand, output, and employment levels, and at the same time, prices for output increased at the fastest rate since the beginning of 2023.

Since October 2023, Houthi forces have been launching attacks on ships affiliated with Israel. These attacks were a direct retaliation to the Israeli war in Gaza. These incidents impacted global trade as a whole, besides affecting the Suez Canal specifically.

These attacks has caused the prices of ship freight to increase from $750 to $6,800 per container, Chairman of the Suez Canal Authority (SCA) Osama Rabie, said in the opening of the 13th annual conference on Sustainable Green Blue Infrastructure (MARLOG 13) on Sunday.

In a separate statement, Rabie also disclosed that because of the Red Sea attacks, Suez Canal's revenues experienced a decline in January 2024. The revenue dropped by 46.7%, amounting to $428 million compared to $804 million in January 2023.

The reading was the lowest for 11 months and weaker than the survey's long-run trend. Egyptian non-oil firms pointed to a decline of order book volumes in February. New orders fell at the fastest rate since March 2023, with domestic sales performing especially poorly amid rising price pressures and supply-side challenges. Demand conditions were consistently weak across the monitored sectors, with wholesale & retail firms suffering the steepest fall.

"Egypt's non-oil economy appeared to suffer markedly in February as it found itself caught in the middle of the wider regional crisis. According to government reports, Red Sea shipping disruption has roughly halved Suez Canal revenues so far in 2024, which February PMI survey data indicated had a considerable impact on foreign currency inflows and inflationary pressures,” Senior Economist at S&P Global Market,  Intelligence, David Owen, said.

At the same time, cost inflationary pressures accelerated to their highest for 13 months amid reports that a sharp decline in Suez Canal trade due to Red Sea shipping disruption exacerbated shortages of the US dollar and other foreign currencies.

The increase in import prices led to a substantial increase in purchasing costs, with over a third of surveyed firms reporting an increase since January. According to the report, shipping disruptions also contributed to the longer supplier delivery times since June 2022.

"Notably, more than a third of surveyed companies saw their purchasing costs increase over the month, with most comments linking this to rising US dollar values on informal markets. Input and output price inflation both reached their highest levels for 13 months, putting increased pressure on customer spending power,” Owen stated.