Ahmed Kamel – Egypt Daily News
Egypt’s non-oil private sector showed signs of resilience in July as the pace of contraction in output and new orders slowed, marking a tentative shift toward stability. However, underlying cost pressures remain high, driven by surging input prices and rising wages, painting a mixed picture for the sector’s recovery.
According to the latest Purchasing Managers’ Index (PMI) by S&P Global, the index rose to 49.5 in July, up from 48.8 in June. While still below the critical 50-point threshold that separates growth from contraction, the reading marks the softest downturn in five months, suggesting a gradual easing of strain on the private economy.
David Owen, Senior Economist at S&P Global Market Intelligence, noted that despite the sector remaining in contraction territory, there were “some reasons for optimism.” Several firms reported receiving new business, which helped slow the rate of decline in sales. Additionally, July saw a modest increase in employment the first recorded rise in nine months as companies responded to a slight improvement in demand.
Output and Orders Still Struggling
Despite the more tempered pace of decline, companies surveyed reported a continued dip in output during July, attributing the downturn to weak client demand and reduced new orders. However, there were early signs of a rebound in certain areas, particularly within the services sector, where some businesses began to report improving conditions.
The employment increase, albeit slight, came in response to a rise in unfinished work, which grew for the first time since March. This uptick suggests that while new business is still subdued, it was sufficient to put some pressure on operational capacity, prompting firms to expand their workforce.
Inflation and Cost Pressures Mount
Cost inflation remains a significant hurdle. Companies across the sector reported accelerating input costs, citing higher prices for essential goods such as cement, fuel, and packaging materials. Employee wages also climbed, adding to the overall cost burden. Although the pace of input inflation is still well below long-term averages, it continues to challenge operating margins.
In line with rising costs, businesses passed some of these increases onto consumers. July marked the third consecutive month of rising output prices, as firms adjusted their pricing strategies to offset higher expenses.
This comes as Egypt’s headline urban inflation rate decelerated in June to 14.9% year-on-year, down from 16.8% in May, ending a three-month streak of acceleration. The slower inflation pace may offer temporary relief, but cost pressures within the private sector remain acute.
Outlook: Cautious Optimism Amid Uncertainty
Looking ahead, business sentiment improved slightly in July after hitting a record low in the previous month. While the mood among firms remains subdued, the marginal uptick in optimism reflects hope for a gradual rebound. Nonetheless, many companies continue to express concerns about persistent weak demand and ongoing economic uncertainty, keeping future expectations well below historical averages.
Egypt’s private sector continues to navigate a challenging economic landscape, marked by fluctuating inflation, cautious consumer behavior, and global uncertainties. While July’s data offers glimpses of stability and potential for recovery, the road ahead remains uncertain and heavily reliant on broader economic reforms and market confidence.
