Egypt's non-oil private sector sees first expansion in three years

In August, Egypt’s non-oil private sector experienced its first expansion in more than three years, according to the S&P Global Egypt Purchasing Managers’ Index (PMI) report.

The headline PMI, a composite measure of economic health in the sector, rose to 50.4 in August from 49.7 in July, marking the first time since November 2020 that the index has surpassed the neutral 50.0 threshold, indicating improved business conditions.

The increase in the PMI was driven by renewed growth in output and inventory levels, reflecting a cautious yet positive sentiment among businesses. Companies also increased their staffing levels and purchases of inputs, signaling confidence in future demand.

The rise in the PMI was supported by four of its five sub-components, with only new orders showing a slight marginal decline.

David Owen, senior economist at S&P Global Market Intelligence, commented on the data, stating, "Business conditions are on the mend according to the August survey data, as the PMI's jump into above-50 territory indicated an improvement at non-oil businesses for the first time since late 2020."

He noted that increased output, employment, and purchasing activity suggested growing confidence among firms.

However, the report also highlighted significant inflationary pressures. The weakening of the Egyptian pound against the US dollar contributed to a sharp rise in input costs, particularly in transportation and wage expenses. As a result, businesses raised their selling prices to protect margins, leading to the fastest rate of charge inflation in five months.

This inflation, combined with continued weak client demand, posed challenges to sustained growth.

Owen pointed out the mixed nature of the current economic landscape, saying, "The situation appears mixed, with many companies still reporting weak client demand, leading to another slight drop in total new orders. Rising price pressures are another risk... which has the potential to limit spending and weaken the market recovery."

The data from the past three months suggests a stabilization in demand conditions, with firms cautiously optimistic about a market recovery fueled by improved macroeconomic factors and rising export business.

Business optimism about future activity reached its highest level since mid-2022, indicating hope for more stable economic conditions in the near term.

As businesses navigate these mixed signals, the outlook remains cautiously positive, with many firms preparing for continued growth despite the challenges posed by inflation and fluctuating demand.