Egypt’s non-oil private sector saw worsening business conditions in December, with output and new orders shrinking at the fastest pace in eight months, according to a private survey by S&P Global.
Inflation and currency volatility drive challenges
The seasonally adjusted S&P Global Egypt Purchasing Managers’ Index (PMI), a key measure of operating conditions in the non-oil private sector, fell to 48.1 in December from 49.2 in November. This marks the fourth consecutive month of contraction, with a reading below 50 signaling a decline.
“The latest Egypt PMI data showed that the non-oil private sector’s anticipated recovery is unlikely to be without its setbacks in 2025,” said David Owen, senior economist at S&P Global Market Intelligence.
The decline in the PMI can be attributed to several factors, including the significant depreciation of the Egyptian pound, which drove up input prices and led to the steepest increase in input price inflation in three months. However, output prices saw only a modest rise, the smallest since May. This limited increase is due to companies being hesitant to raise their prices amidst mounting cost pressures, opting instead to tighten their margins to secure new orders. As a result, some companies have divested from their shares, reflecting concerns over the increasing purchasing costs.
Additionally, total inventories fell for the first time in six months, signaling a decline in production output.
“With the Egyptian pound deteriorating against the US dollar, breaching the 50-per-dollar mark in early December, businesses reported higher prices and a slump in demand, leading to the fastest decline in operating conditions since last April,” added Owen.
Manufacturing and services sectors show resilience
The construction and wholesale/retail sectors experienced the steepest declines in activity, while the services sector remained relatively stable, with a more consistent flow of new business.
Despite the overall economic downturn, certain sectors showed signs of resilience, particularly in manufacturing and services. Companies in these industries increased their purchases of new inputs, suggesting a potential recovery in the coming months. However, the non-oil sector continued to face challenges, with employment cuts reported for the second consecutive month.
Inventories also decreased for the first time in six months, as some companies reduced purchases and drew from existing stock to manage costs. While the manufacturing and services sectors saw modest increases in input buying, overall purchasing activity remained subdued, according to the report.
Further, salary costs have risen sharply, the S&P report noted, reversing the low inflation seen in November—the lowest point in 16 months. The acceleration in staff pay inflation has further contributed to the tightening of margins in many firms, particularly those struggling with rising production costs, it added.
Future outlook
Looking ahead to 2025, there is a cautiously optimistic outlook among businesses in the non-oil sector, with expectations of improved domestic conditions and a potential stabilization of geopolitical factors. However, inflationary concerns continue to cloud sentiment, with some companies remaining pessimistic about the near-term outlook.
The future output sub-index rose to 53.8 in December, up from 50.5 in November.
