Evelyn Reynolds
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How to Read the Fed’s Projections Like a Pro
Federal Reserve officials released both an interest-rate decision and a fresh set of economic projections on Wednesday, estimates that Wall Street was keenly awaiting as it tries to understand what the next phase of the central bank’s fight against rapid inflation will look like.Officials raised borrowing costs by three-quarters of a percentage point, their third-straight jumbo increase, taking their official interest rate to a range of 3 to 3.25 percent. But they also penciled in additional increases for the rest of this year and next, projecting that rates would reach 4.4 percent by the end of the year and climb to 4.6 percent by the end of 2023.Here’s how to read the numbers released on Wednesday.The dot plot, decodedWhen the central bank releases its Summary of Economic Projections each quarter, Fed watchers focus obsessively on one part in particular: the so-called dot plot.The dot plot shows the Fed’s 19 policymakers’ estimates for interest rates at the end of 2022, along with the next several years and over the longer run. The forecasts are represented by dots arranged along a vertical scale.What Federal Reserve officials think rates should be in the next two years. More
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How a Looming Oil Ban Could Devastate a Small Italian City
Like thousands of Sicilians who live near Priolo Gargallo, part of an industrial petrochemical hub on this island’s southeastern coast, Davide Mauro has tied his livelihood to the giant Russian-owned Lukoil refinery — a landscape of towering chimney stacks, steel cranes and flat-topped gas tanks that rise above the Ionian Sea’s brilliant turquoise waters.Ever since the European Union agreed to ban most imports of crude oil from Russia because of its invasion of Ukraine, the future of this refinery — the largest in Italy — has been thrown into doubt. The deadline for the embargo is less than three months away, but workers still have no idea whether they will have jobs once it goes into effect on Dec. 5.“The company never says anything official,” said Mr. Mauro, a shift operator who has worked for 20 years at a plant that supplies the oil refinery with power. There has been talk of the Italian government’s possibly nationalizing the facility or guaranteeing new lines of credit. Most recently, there has been talk of an interested American buyer. But Mr. Mauro said: “It’s all rumors. Nothing’s clear.”The uncertainty hanging over the Lukoil refinery is a potent example of how the hard-won unified opposition to Russia’s invasion of Ukraine is rippling, sometimes in unintended ways, through Europe, straining local economies and fanning political tensions.Davide Mauro, a shift worker at the ISAB Lukoil refinery, at his home in Siracusa. He fears losing his job after Europe’s embargo on Russian oil goes into effect.Gianni Cipriano for The New York TimesSoaring fuel and food prices have eroded living standards. European leaders have already warned that rationing, factory closures and blackouts may be coming this winter. But in places like the Siracusa province of Sicily, the economic sanctions against Russia — previously Europe’s largest supplier of energy — carry a particular sting.Areas bearing a disproportionate share of the economic burden can be found all over the continent: in Schwedt, Germany, where an oil refinery also depends on Russian crude; in Arques, France, where an energy-hungry glass factory can’t afford to keep the furnaces running; and in Tertre, Belgium, where high natural gas prices have compelled the fertilizer company Yara to shutter its operation.If the Lukoil site in Priolo closes, Mr. Mauro said, he will probably have to leave this place, where he was born. The unemployment rate in Sicily is nearly 19 percent — one of the highest in the European Union. Finding a well-paying job like the one Mr. Mauro has with Lukoil would be next to impossible.“It’s a nightmare,” he said. “My entire life is here.”Lukoil, the largest private corporation in Russia, was not singled out by sanctions by any country when the Ukraine war started in February. Still, many banks and other financial institutions decided to avoid doing business with Russian companies after the European Union imposed sanctions. And so Lukoil lost lines of credit, which it had used to finance purchases of crude from suppliers outside Russia.Before the war, the Priolo refinery, known as ISAB after its former owner, got roughly 40 to 50 percent of its oil from Russia. Now with those other sources off limits, its only alternative was to get all of its crude from Lukoil.Oil tankers at the ISAB Lukoil oil terminal. Before the war in Ukraine, the Priolo refinery got roughly 40 to 50 percent of its oil from Russia.Gianni Cipriano for The New York TimesA Lukoil gas station in Priolo. Although Lukoil is not under sanctions, lenders have stopped providing financing after the European Union imposed sanctions on Moscow for its invasion of Ukraine.Gianni Cipriano for The New York TimesBut when the European Union’s oil embargo kicks in, no Russian oil will be allowed in. Without a financial rescue plan that would allow it to buy non-Russian oil, the plant faces closure and job cuts.“The impact on the community will be devastating,” Giuseppe Gianni, the mayor of Priolo, said from his office, lighting a small cigar. Above his desk hung a gold crucifix and an enormous painting of a Madonna and Child under a fig tree. Outside the window is a small pastel-colored playground with a view of the refinery as a backdrop.Mr. Gianni acknowledged that the petrochemical complex had been linked to toxic air, water pollution and cancer, which he said needed to be resolved, but he maintained that closing the refinery would blight the area’s economy.The refinery, which processes more than a fifth of Italy’s crude oil in addition to exports to other countries, employs about 1,000 workers directly. Two thousand more are contractors working on maintenance and mechanical projects. Another 7,500 in the area — from truck drivers to seamen — would be affected by the widespread layoffs.Several other energy and petrochemical companies including Sasol, Sonatrach and Versalis are in the area, and representatives have said that because the plants produce and buy products from one another and share contractors and supply chains, their economic futures are linked.Giuseppe Gianni, the mayor of Priolo, said closing the Priolo refinery would blight the local economy.Gianni Cipriano for The New York TimesWorkers for ISAB taking a bus home after their shift in Priolo.Gianni Cipriano for The New York Times“The effect would be destabilizing for the whole industrial area,” said Carmelo Rapisarda, the head of the industrial sector of the C.G.I.L. trade union in Siracusa, adding that the 35-kilometer industrial hub accounts for half the province’s economy.The looming oil embargo has forced the region to suddenly confront a long-simmering crisis. The European Union’s decision to transition away from fossil fuels to renewable energy sources means that the life span of the ISAB refinery and two others on Sicily’s coast is limited.“The situation was already critical regardless of the war,” Mr. Rapisarda said.Last year, Confindustria Siracusa, the area’s industrial association, proposed a $3 billion conversion plan to develop new clean facilities that could reduce carbon emissions and produce hydrogen. But both the Italian government and the European Union have been reluctant to spend money to help the oil industry transition.Aside from the economic fallout on the region, the refinery is important to Italy’s energy security, said Simone Tagliapietra, a senior fellow at Bruegel, a research group in Brussels. “They cannot let the refinery close down” right away, he said. It is needed “to ensure the provision of oil products, mainly to southern Italy” during the transition.The political situation is complicating the search for a quick solution. Mario Draghi’s national unity government fell in July, and he is in a caretaker role until elections on Sunday. Giorgia Meloni, the hard-right leader of Brothers of Italy, is leading in the polls.Once a vocal admirer of President Vladimir V. Putin of Russia, Ms. Meloni has recently said she supports following the European Union sanctions and sending weapons to Ukraine.Whoever wins the election will inherit the fallout from the oil embargo. But in the meantime, the situation is becoming urgent. To meet the Dec. 5 deadline of ending seaborne imports, the plant would have to start preparing for a shutdown in November and halt deliveries. Various figures, including the outgoing ecological minister, have mentioned the possibility of nationalizing the refinery. In Germany, the government last week took control of three refineries owned by the Russian oil company Rosneft.But Claudio Geraci, vice president of Confindustria Siracusa, dismissed the idea of nationalization as absurd. Mr. Geraci, who is deputy general manager for human resources and external relations at ISAB in Sicily, emphasized that he was speaking solely in his capacity as vice president of the industrial association. “As ISAB’s manager, there is no comment,” he said. In response to queries, press representatives at Lukoil’s headquarters in Moscow declined to comment.Carmelo Rapisarda, a C.G.I.L. union representative, said closing the refinery “would be destabilizing for the whole industrial area.”Gianni Cipriano for The New York TimesA Lukoil gas station near the ISAB Lukoil refinery in Priolo.Gianni Cipriano for The New York TimesMr. Geraci said “the only possibility” was for the government to guarantee a line of credit so that the company could buy crude from non-Russian sources. But he added that “from Confindustria’s point of view, the situation is difficult,” because the Italian government does not want to be seen as helping a Russian company.Local political leaders said there had been interest from potential outside investors. According to union officials, representatives from Crossbridge Energy Partners, a New York-based company that converts traditional energy infrastructure, had recently visited the plant. Crossbridge said it had no comment.Any meaningful and sustainable conversion plan would need significant public investment, said Lucrezia Reichlin, the founder and president of the Ortygia Foundation, a nonprofit devoted to promoting development in southern Italy and located about five miles south of Priolo.Given the region’s important industrial tradition, such an approach makes sense, Ms. Reichlin said. But with the political uncertainty, she added, “I doubt that we’ll have a government that is ambitious enough to look at this situation with a long-term view toward the energy transition.”Ms. Reichlin, who is also an economics professor at the London Business School, said the Italian government was likely to fall back on a familiar and expensive stopgap measure: public assistance for employees who lose their jobs.For now, it seems that workers like Mr. Mauro, politicians like Mayor Gianni and industrial leaders like Mr. Geraci are operating on a wing and a prayer, inveighing against the inaction, while hoping for a last-minute miracle.“It’s like the bank that is too big to fail,” Mr. Mauro said of the refinery and his hope for a bailout. But the precise solution is still murky. “It’s a typical Italian situation,” he added. “I’m sure we will know what happens only at the last moment.”The Bar La Conchiglia, a cafe frequented by refinery workers in Priolo.Gianni Cipriano for The New York Times More
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How the Car Market Is Shedding Light on a Key Inflation Question
How easily companies give up swollen profits could determine how easily the Federal Reserve can cool inflation. Dealerships offer clues.In a recent speech pointedly titled “Bringing Inflation Down,” Lael Brainard, the Federal Reserve’s vice chair, zoomed in on the automobile market as a real-world example of a major uncertainty looming over the outlook for price increases: What will happen next with corporate profits.Many companies have been able to raise prices beyond their own increasing costs over the past two years, swelling their profitability but also exacerbating inflation. That is especially true in the car market. While dealerships are paying manufacturers more for inventory, they have been charging customers even higher prices, sending their profits toward record highs.Dealers could pull that off because demand has been strong and, amid disruptions in the supply of parts, there are too few trucks and sedans to go around. But — in line with its desire for the economy as a whole — the Fed is hoping both sides of that equation could be on the cusp of changing.“With production now increasing, and interest-sensitive demand cooling, there may soon be pressures to reduce vehicle margins and prices in order to move the higher volume of cars being produced off dealer lots,” Ms. Brainard explained during her remarks.The Fed has been raising interest rates to make borrowing for big purchases — cars, houses, business expansions — more expensive. The goal is to cool demand and slow the fastest inflation in four decades. Whether it can pull that off without inflicting serious pain on the economy will hinge partly on how easily companies surrender their hefty profits.If companies begin to lower prices to compete for customers as demand abates, price increases might slow without costing a lot of jobs. But if they try to hold on to big profits, the transition could be bumpier as the Fed is forced to squeeze the economy more drastically and quash demand more severely.“There has been a giant shift in bargaining power between consumers and corporations,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities. “That’s where the next adjustment has to come — corporations have to see some pain.”The example of the auto industry offers reasons for hope but also caution. While there are signs that price increases for used cars are beginning to moderate as supply recovers, that process has been halting, and the new-car market illustrates why the path toward lower profits that help slow inflation could be a long one.That’s because three big forces that are playing out across the broader economy are on particularly clear display in the car market. Supply chains have not completely healed. Demand may be slowing down, but it still has momentum. And companies that have grown used to charging high prices and raking in big profits are proving hesitant to give up.The auto market split into two segments that are now diverging — new cars and used cars.New-car production was upended as the pandemic shut down factories making semiconductors and other parts, and it is only limping back. Freshly minted vehicles remain extraordinarily scarce, according to dealers and data, and several industry experts said they didn’t see a return to normal levels of output for years as supply problems continue. Prices are still increasing swiftly, and dealer profits remain sharply elevated with little sign of cracking.Inflation F.A.Q.Card 1 of 5What is inflation? More
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'Path to oblivion': Ukraine military gains could deepen Russia's economic problems
Ukraine’s military has had stunning success in recent weeks, recapturing Russian-occupied territory in the northeast and south of the country.
Holger Schmieding, chief economist at Berenberg, said the recently Ukrainian military gains could hit Russia’s economy hard.
The Economist Intelligence Unit is projecting a Russian GDP contraction of 6.2% this year and 4.1% this year, which its Global Forecasting Director Agathe Demarais told CNBC is “huge, by both historical and international standards.”Russian President Vladimir Putin attends a meeting of heads of the Shanghai Cooperation Organization (SCO) member states at a summit in Samarkand, Uzbekistan September 16, 2022.
Foreign Ministry Of Uzbekistan | via ReutersUkraine’s counteroffensive, which has seen vast swathes of Russian-occupied territory get recaptured, could be compounding Russia’s economic troubles, as international sanctions continue to hammer its fortunes.
Ukraine’s military has had stunning success in recent weeks, recapturing Russian-occupied territory in the northeast and south of the country. Now, Kyiv is hoping to liberate the Luhansk in the eastern Donbas region, a key area where one of two pro-Russian self-proclaimed “republics” is located.Holger Schmieding, chief economist at Berenberg, said the recent Ukrainian military gains could hit Russia’s economy hard.
“Even more so than before, the Russian economy looks set to descend into a gradually deepening recession,” Schmieding said in a note last week.
“The mounting costs of a war that is not going well for [Russian President Vladimir] Putin, the costs of suppressing domestic dissent and the slow but pernicious impact of sanctions will likely bring down the Russian economy faster than the Soviet Union crumbled some 30 years ago.”Ukrainian soldiers ride on an armored vehicle in Novostepanivka, Kharkiv region, on September 19, 2022.
Yasuyoshi Chiba | Afp | Getty ImagesHe highlighted that Russia’s main bargaining chip when it comes to the international sanctions imposed by the West – its influence over the energy market, particularly in Europe – was also waning.
“Although Putin closed the Nord Stream 1 pipeline on 31 August, the EU continues to fill its gas storage facilities at a slightly slower but still satisfactory pace,” he noted, adding that even Germany — which was particularly exposed to Russian supplies — could even get close to its 95% storage target ahead of winter.Energy problems
Europe’s rapid shift away from Russian energy is particularly painful for the Kremlin: the energy sector represents around a third of Russian GDP, half of all fiscal revenues and 60% of exports, according to the Economist Intelligence Unit.
Energy revenues fell to their lowest level in over a year in August, and that was before Moscow cut off gas flows to Europe in the hope of strong-arming European leaders into lifting the sanctions. The Kremlin has since being forced to sell oil to Asia at considerable discounts.
The decline in energy exports means the country’s budget surplus has been heavily depleted.
“Russia knows that it has no leverage left in its energy war against Europe. Within two or three years, the EU will have gotten rid of its dependency on Russian gas,” the EIU’s Global Forecasting Director Agathe Demarais told CNBC.
This is a key reason why Russia has opted to cut off gas flows to Europe now, she suggested, with the Kremlin aware that this threat could carry far less weight in a few years’ time.GDP slump
The EIU is projecting a Russian GDP contraction of 6.2% this year and 4.1% next year, which Demarais said was “huge, by both historical and international standards.”
“Russia did not experience a recession when it was first placed under Western sanctions in 2014. Iran, which was entirely cut off from Swift in 2012 (something that has not happened to Russia yet), experienced a recession of only around 4% in that year,” she said.
Statistics are scarce on the true state of the Russian economy, with the Kremlin keeping its cards relatively close to its chest. However, Bloomberg reported earlier this month, citing an internal document, that Russian officials are fearing a much deeper and more persistent economic downturn than their public assertions suggest.
Putin has repeatedly claimed that his country’s economy is coping with Western sanctions, while Russia’s First Deputy Prime Minister Andrei Belousov said last month that inflation will come in around 12-13% in 2022, far below the gloomiest projections offered by global economists earlier in the year.
Russian GDP contracted by 4% in the second quarter of the year, according to state statistics service Rosstat, and Russia upped its economic forecasts earlier this month, now projecting a contraction of 2.9% 2022 and 0.9% in 2023, before returning to 2.6% growth in 2024.However, Demarais argued that all visible data “point to a collapse in domestic consumption, double-digit inflation and sinking investment,” with the withdrawal of 1,000 Western firms also likely to have implications for “employment and access to innovation.”
“Yet the real impact of sanctions on Russia will be felt mostly in the long term. In particular, sanctions will restrict Russia’s ability to explore and develop new energy fields, especially in the Arctic region,” she said.
“Because of Western penalties, financing the development of these fields will become almost impossible. In addition, U.S. sanctions will make the export of the required technology to Russia impossible.”Sanctions ‘here to stay’
European Commission President Ursula von der Leyen delivers the State of the European Union address to the European Parliament, in Strasbourg, France, on Sept. 14, 2022.
Yves Herman | Reuters“We have cut off three quarters of Russia’s banking sector from international markets. Nearly one thousand international companies have left the country,” she said.
“The production of cars fell by three-quarters compared to last year. Aeroflot is grounding planes because there are no more spare parts. The Russian military is taking chips from dishwashers and refrigerators to fix their military hardware, because they ran out of semiconductors. Russia’s industry is in tatters.”
She added that the Kremlin had “put Russia’s economy on that path to oblivion” and vowed that sanctions were “here to stay.”
“This is the time for us to show resolve, not appeasement,” von der Leyen said.As the Kremlin scrambles to strengthen security ties, having been shunned by the West, a top Russian official stated on a visit to Beijing last week that Moscow sees deepening strategic ties with China as a key policy aim. Putin also met Chinese President Xi Jinping in Uzbekistan last week as the two countries touted a “no limits” relationship.
However, several commentators have noted that as Russia’s bargaining power on the world stage wanes, China will hold most of the cards as the two superpowers attempt to cement further cooperation.
“In the long term, China will be the sole economic alternative for Russia to turn to, but this process will be tricky, too, as China will remain wary of becoming overdependent on Russian commodities,” the EIU’s Demarais added.WATCH LIVEWATCH IN THE APP More
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What Comes Next in the Fed’s Fight Against Inflation?
Wall Street will watch the central bank’s economic forecasts closely on Wednesday, when another jumbo-size rate increase is expected.The Federal Reserve is expected to deliver a third straight supersize interest rate increase this week as it wages its most aggressive fight against inflation since the 1980s — and it could signal even more to come.Central bankers are widely expected to raise interest rates three-quarters of a percentage point at their meeting on Wednesday, and investors think there is even a small chance of a full percentage-point move.But Wall Street is more focused on what comes next. Officials will release updated economic forecasts for the first time since June after their two-day meeting this week. Those are expected to show a more forceful path ahead for rates than Fed officials previously anticipated as rapid inflation continues to plague America. The question is just how much more assertive the Fed will be.Central bankers have already raised interest rates considerably in an attempt to slow the economy and temper price increases. Business activity is slowing in response, but it is not falling off a cliff: Employers continue to hire, wages are rising, and inflation has remained stubbornly quick.That has prompted officials to reinforce in speeches that they are serious about getting price increases under control, even if doing so comes at a cost to growth and the labor market. It’s an inflation-focused tone that many on Wall Street refer to as “hawkish.”The economic projections could give policymakers the chance to underline that commitment.“Things are not quite evolving as they had expected — they’re having trouble slowing the economy,” said Gennadiy Goldberg, a U.S. rates strategist at TD Securities. “At the end of the day, there is very little they can do this week but sound hawkish.”Jerome H. Powell, the Fed chair, will hold a news conference after the release, and is likely to echo his pledge late last month to do what it takes to wrestle prices lower.That could be a painful process, Mr. Powell has acknowledged. Higher interest rates temper inflation by making it more expensive to borrow money, discouraging both consumption and business expansions. That weighs on wage growth and can even push unemployment higher. Firms cannot charge as much in a slowing economy, and inflation cools down.“While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Mr. Powell said last month. He later added, “We will keep at it until we are confident the job is done.”If the Fed continues raising rates along the trajectory that economists and investors increasingly expect, the fallout could be painful. In the early 1980s, the last time inflation was as high as it is today, the central bank under Paul A. Volcker jerked borrowing costs sharply higher and mired the economy in a recession that sent joblessness to double-digit levels. Homebuilders mailed Mr. Volcker two-by-fours from buildings they could not build; car dealers sent keys from cars they could not sell.Inflation F.A.Q.Card 1 of 5What is inflation? More
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Egypt Feels Pain of Global Disruptions Wrought by War and Pandemic
The country’s economy has been very hard hit by cascading crises which have disrupted worldwide trade.When the state-owned factory where Hesham al-Atar worked for 15 years was liquidated this month, he had a feeling it was linked to international pressure on the Egyptian government to reduce its role in the economy amid a severe downturn.Mr. el-Atar, 39, was a supervisor at the factory, El Nasr Coke and Chemicals Plant, which turned coal into a fuel called coke used in iron and steel production. Now, with his daily expenses rising, he said that he fears he will not be able to find another job near his home in the city of El Saf, about two hours south of the Egyptian capital.“I don’t know what to do,” he said. “I have four kids. We’re used to a certain standard of living. It will have to change.”Egypt, which relies heavily on imported goods and foreign borrowing, has been badly battered by the cascading disruptions to global trade from the pandemic and Russia’s war on Ukraine. The exit of foreign investment capital, a collapse in tourism and spiking commodity prices have all translated into a foreign-currency shortage.The government has responded by implementing more onerous import rules, devaluing the local currency and pushing up interest rates. It has also taken steps to privatize or shut down state-owned enterprises, a key demand of international investors and creditors who say the government’s outsized role in the economy hinders private investment.But at the same time, Egypt has succeeded in raising more than $22 billion this year in investment pledges from wealthy Gulf allies leery of seeing one of the pillars of the Arab world on the brink after a decade of tumult that began with the country’s 2011 uprising.Consumers immediately felt the impact of the government’s response to the crisis, particularly Egypt’s middle class, which has been whittled away by a persistent lack of job opportunities, decreases in consumer subsidies, paltry spending on health and education and a regressive tax system that goes in no small part to fund grandiose infrastructure projects.The import rules introduced at the beginning of the year required companies to pay for goods up front through the national banking system. That left some imported goods stuck in the ports and created shortages, though the government has since taken steps to ease the problems.In March, the central bank devalued the currency by about 14 percent and prices shot up. Salaries, however, did not.“We have to pay European prices on Egyptian salaries,” said Mona Hosni, a 34-year-old Cairo resident. “Our salaries are not like Europeans!”Ms. Hosni works on one side of Cairo and studies on the other. With the rise in prices, she cannot afford to move out of her family home in the suburb of Helwan. So she spends about three hours a day driving her 2011 Nissan between home, school and work.A new car is out of the question.High-rise buildings in Cairo seen from the Nile in 2020.Sima Diab for The New York TimesThe roads she drives on are lined with new developments and billboards advertising luxury real estate, even as much of the country remains mired in poverty.In recent years, President Abdel Fattah el-Sisi has overseen a huge building boom, borrowing from abroad to fuel Cairo’s inexorable sprawl. The government is even erecting a new capital in the desert, not far from the current one, at a cost of some $59 billion.Samer Atallah, an economics professor at the American University in Cairo, said that the country had taken on tremendous debt — which is becoming more expensive by the day as interest rates rise — without investing in the kinds of things that could create more exports, more sustainable economic growth or steady government revenues.“Fundamentally, the economy was geared up for a crisis,” he said.The government has been in talks with the International Monetary Fund about a loan: Economists estimate that Egypt may need $15 billion over the next three years, though the government has said it will seek a smaller package. And Egypt is expected to devalue the currency even further soon.The government must balance the demands of investors — whose money could help alleviate the economic crisis — with the risks of implementing measures that could cause even more economic pain for its citizens.International lenders have urged Egypt to privatize more of its economy as one way to achieve more lasting economic growth. Much of the economy has long been controlled by the state through moribund government-owned companies.In the case of the El Nasr factory where Mr. al-Atar worked for 15 years, the government said that it had incurred a loss of about $1.5 million last year and had no possibility of modernizing or improving its financial standing. The factory, which began production in 1964, was emitting significant pollution, according to news reports and government documents.Mr. el-Atar is now a union representative negotiating a severance package for the workers but whatever deal is reached, the money surely won’t go far given the rising prices and currency devaluation.The military’s control over a range of businesses has stifled competition from the private sector in industries from concrete to pasta production by leaning on advantages such as free conscripted labor and exemptions from taxes and customs fees.Egypt has promised before to privatize without following through. But as the economy cratered this year, the government has shown signs of renewed resolve, starting to sell off or shut down several state-owned companies.Across Cairo, people from all walks have been forced to adjust their daily routines to adapt to the economic pressures.At an auto-repair shop in one suburb, two managers said that the cost of parts they need from Europe had shot up and that they were losing customers because of the higher prices. Business is half of what it was before the pandemic, they added.“We’re all struggling,” said Mostafa el-Gammal, the general manager. “It’s showing on everyone.”Though they haven’t laid anyone off, wages at the shop are stagnant.Mr. el-Gammal said that he tried to shield his four children from the economic decline. But he said he was taken aback when he went to buy two of them backpacks for the start of the school year and shelled out double what he had in the past.His colleague who manages the auto shop, 33-year-old Mohamed Farouk, said that he had transferred his 6-year-old son to a more affordable school near their home in Nasr City, another Cairo neighborhood.The government has also tried to increase revenue by raising fees for its services.Assem Memon, 39, runs AdMazad, a private business with 14 employees that collects data on billboards to sell to companies that want to optimize ad campaigns. He said the economic slowdown and devaluation have complicated his plans to expand outside Egypt.A construction site at Egypt’s new administrative capital east of Cairo in September.Khaled Elfiqi/EPA, via ShutterstockThe government was creating headaches for employers, Mr. Memon said, including a new Ministry of Finance online portal that must be used for all business-to-business transactions. The aim is to allow the government to see every transaction.Some tax withholding practices were also changed, he added, reducing the cash he can keep on hand. While he understands the government is aiming to increase revenue, he said the approach could deter entrepreneurship.“It’s suffocating small businesses,” he said.Gamal Osman, 59, a warehouse worker in Tanta, a city about two hours north of Cairo, said he was also paying more in fees for basic services, like renewing his identification card. He said that he had cut back to eating meat only once every two weeks and that, still, he could not save money like he used to.“You can feel it in everything you do,” he said. “From the moment you step onto the street until the moment you go to sleep.”Still, others see opportunity in the hardship.Mohamed Ehab is a marketing director for an auto company that introduced Jetour, a Chinese brand, into the Egyptian market in 2020. Sales were booming last year, but the new import rules have snarled the business.The company stopped accepting orders months ago and is focusing on expanding service centers.Mr. Ehab said that there was still demand for a practical family car, even after prices shot up with the devaluation. The company’s lowest-priced car went up to $26,000 from about $18,000, largely because the importers have to pay China in dollars.But he is hopeful that the impasse will spur the government to offer incentives for auto companies to assemble their products inside Egypt, which could generate jobs and make cars more affordable.“It’s a difficult time, but I think it’s part of a bigger, good story,” he said. More
