Cairo, Egypt – Egypt’s private non-oil business sector declined for the second consecutive month in September, as the strongest drop in new orders in five months dominated the downturn, according to a recent Purchasing Managers’ Index (PMI) report released by S&P Global on Sunday.
The seasonally adjusted PMI fell to 48.8 in September from 49.2 in August, the weakest since June and still short of the key 50.0 level that separates contraction and growth.
A Deteriorating Contraction in Demand
The principal explanation for the fall was a steep and prolonged decline in new order inflows. Firms reported tough local conditions, including continued inflation and diminished client purchasing power, that significantly damped demand. The declining new orders were the biggest since April, and they prompted many firms to reduce their purchasing activity for the second consecutive month.
To the domestic problems, there was added the fact that the export facet of the economy remained a huge weak link. Overseas sales declined for the tenth month in a row, and the decline’s speed hit its highest level in three years. It suggests Egyptian products are not competitive in the international market, perhaps due to international economic forces and continued currency fluctuations.
A Mixed Picture on Costs and Employment
In a single bright spot for businesses, the survey registered some relief on the cost of inputs. Inflation in raw materials and other inputs eased to its lowest rate since March. Economists attributed this easing largely to a stronger Egyptian pound that has lowered the cost of imports denominated in dollars.
However, this was offset by increased staff expenses, which advanced at their quickest rate since May 2024. A lot of this increase has come from an increase in living expenses and the government’s introduction of an above rate higher minimum wage, putting more pressure on firms’ operating margins.
The employment market was stagnant. After two months of poor job growth, staffing numbers were essentially the same in September as nearly every company surveyed reported headcount unchanged. This hiring freeze reflects a defensive business environment where companies don’t want to add to their personnel as orders decline.
Pessimism Increases as Business Confidence Fades
The combined impact of falling demand, stagnant jobs, and continued cost concerns has severely dampened business confidence. Optimism regarding production next year dropped to one of the lowest on record in this survey.
“While companies are struggling to win new business in challenging general market conditions, they can take some comfort from relief trends in input costs,” said David Owen, S&P Global Market Intelligence Senior Economist. “The concern, however, is that weaker demand appears to be the dominant factor currently, restraining expansion and discouraging investment.”
One of the contradictory signs of this caution was a modest rise in levels of inventory for the first time since May. Some firms chose to build up inputs, perhaps as a safeguard against future price hikes or supply chain breaks, while their own production needs for now fell.
The September PMI data paint a different picture of a private sector grappling with the tricky balance of managing moderating cost inflation on one hand, and a sharper challenge of vanishing demand on the other, with growing business despondency.
