Egypt's Non-Oil Private Sector Contracts To 8-Month Low In December Amid Cost Escalation
Egypt’s non-oil private sector experienced worsening business conditions in December 2024, with output and new orders shrinking at the fastest pace in eight months, according to a survey by S&P Global.
PMI details
The decline was aided by subdued client demand and mounting inflationary pressures, exacerbated by a depreciation in the Egyptian pound against the US dollar.
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 construction as well as wholesale and retail sectors experienced the sharpest declines in activity, while the services sector showed relative stability with a steadier flow of new business.
Businesses reported sharp increases in input costs, driven by higher material prices and the depreciation of the Egyptian pound. Input price inflation reached its highest rate in three months, putting additional strain on firms already grappling with weak demand.
"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.
In response, companies raised their selling prices only modestly, marking the slowest pace of output price inflation since May. Firms prioritized preserving client relationships over passing on costs, further squeezing their profit margins.
Further, employment levels in the non-oil private sector fell for the second consecutive month, although the reduction was slight and primarily due to non-replacement of departing staff. Rising salary costs, attributed to cost-of-living challenges, added to the pressure on firms.
Inventories also declined for the first time in six months, as some companies scaled back purchases and withdrew from existing stock to manage costs. While the manufacturing and services sectors saw modest increases in input buying, overall purchasing activity remained muted.
Economic growth
Egypt’s economy grew by 3.5% in the first quarter of the fiscal year 2024-25, up from 2.7% in the same period last year, the Ministry of Planning and Economic Development said last week, driven by government economic reforms and a recovery in key economic sectors like manufacturing.
Outlook
Despite current challenges, businesses showed improved confidence in future output, with many hoping for a recovery in domestic and geopolitical conditions in 2025. The future output sub-index rose to 53.8 in December, up from 50.5 in November, reflecting cautious optimism.
However, concerns about exchange rate volatility and persistent inflation could temper demand in the near term, economists warned.
What to watch for
Egypt is poised to secure $1.2 billion from the International Monetary Fund (IMF) this month, as part of an $8 billion Extended Fund Facility (EFF) arrangement, Finance Minister Ahmed Kouchouk reportedly told ON TV in an interview on Sunday, according to a Reuters report.