Egypt’s non-oil private sector retreated deeper into contractionary territory in March, with business conditions deteriorating to their weakest level in nearly two years as the Middle East conflict weighed heavily on demand and drove up costs.
The headline seasonally adjusted S&P Global Egypt Purchasing Managers’ Index (PMI) fell to 48.0 in March from 48.9 in February, marking a fourth consecutive monthly slowdown and the lowest reading since April 2024. While the figure remains close to the survey’s long-run average of 48.2, it signals a continued decline in operating conditions across the non-oil economy.
The latest downturn was driven by sharper declines in output and new orders, both of which also dropped at their fastest pace in almost two years.
“Panellists responding to the survey frequently reported that the Middle East war had dampened client demand, partly through an increase in price pressures,” S&P Global said in its report released on Sunday.
Rising costs squeeze margins
At the same time, cost pressures intensified significantly. Average purchase prices rose at one of the fastest rates in the past 18 months, fuelled by higher commodity prices and a stronger US dollar. Firms also cited rising fuel costs and imported input prices as key drivers of inflation, with manufacturers reporting the sharpest increases among monitored sectors.
In response, companies passed some of these costs on to customers, with output prices rising at the quickest pace in ten months, although the increase remained modest overall and broadly in line with historical trends.
“As the US dollar strengthens amid a flight to safety, and energy prices remain elevated, Egyptian companies are clearly feeling the impact on their balance sheets, said David Owen, Senior Economist at S&P Global Market Intelligence.
Despite the worsening conditions, some indicators showed tentative stability. Purchasing activity edged up slightly after two months of decline, while employment levels were broadly unchanged following job cuts earlier in the year.
Business expectations turn negative for the first time
The most striking shift, however, came from business expectations. For the first time since the survey began, firms turned pessimistic about the year ahead, with expectations for future activity slipping into negative territory.
“Expectations towards future activity in the non-oil private sector slipped into negative territory in March. This was the first time in the series history where firms have predicted a fall in output over the next 12 months,” the report noted, adding that the degree of pessimism remained relatively mild.
Economists see resilience despite external shocks
Commenting further on the data, Owen noted that the headline reading clouded a more resilient underlying growth trend.
“While the Egypt PMI fell to a 23-month low and panel members signalled that the Middle East war had weakened demand, the latest figure of 48.0 still relates to annual GDP growth of around 4.3%,” the economist said.
“Combined with stronger PMI readings earlier in the first quarter, recent data suggests the domestic non-oil sector is on a solid underlying growth path.”
Still, he stressed that inflationary pressures remain a key concern for businesses.
The March data underscores the growing strain on Egypt’s non-oil private sector as external shocks ripple through the economy, even as underlying growth conditions show signs of resilience.
