Ahmed Kamel – Egypt Daily News
Egypt’s non-oil private sector lost momentum in September as companies faced weaker customer demand, rising operating costs and continued uncertainty caused by regional instability.
The latest Purchasing Managers’ Index survey showed that business conditions deteriorated more sharply than in August. The headline index (PMI) fell to 47.2 from 49.6, moving further below the 50-point threshold that separates expansion from contraction. The reading also came in below the survey’s long-term average of 48.2.
The decline indicates that the improvement recorded in August was short-lived. Businesses reported a steep drop in both production and new orders, suggesting that the slowdown was driven primarily by weaker demand rather than by temporary supply constraints.
Companies surveyed said customers had become more cautious as market conditions deteriorated. Inflation, high operating expenses and geopolitical tensions were repeatedly identified as factors weighing on sales. The regional security situation has also affected transportation costs and supply chains, adding another layer of uncertainty for businesses that depend on imported materials or international shipping.
New orders declined at one of the fastest rates recorded in recent months. With fewer customers placing orders, companies reduced production and adopted a more conservative approach to purchasing. Input buying fell for the sixth consecutive month, while inventories declined for a third straight month.
The drop in purchasing activity indicates that businesses are attempting to limit expenses and avoid holding excessive stocks during a period of uncertain demand. Lower inventories can help companies protect their cash positions, but they may also leave firms less prepared to respond quickly if sales recover.
Despite the broader downturn, employment increased for a second consecutive month. It was the first time in more than a year that the survey recorded two successive monthly increases in staffing. The pace of hiring remained limited and was slower than in August, but the result nevertheless stood out because it ran counter to the declines in output and new orders.
Some companies appeared to be adding workers to expand capacity or deal with unfinished assignments. Backlogs of work rose for the fifth consecutive month, suggesting that businesses were still struggling to complete existing orders despite the fall in incoming demand. Staff shortages, supply delays and operational disruptions may all have contributed to the accumulation of unfinished work.
The employment figures provide a measure of resilience, but they do not necessarily signal a broad recovery in the labor market. If weak demand persists, companies could find it increasingly difficult to maintain current staffing levels. Businesses may also delay further recruitment if they are unable to secure enough new orders to justify higher payroll costs.
Inflation remained another major challenge. Input prices increased more rapidly during September, reaching their highest level in three months. Companies reported higher expenses for oil, metals, electricity and transportation. These increases raised the cost of producing goods and delivering services at a time when customers were already resisting higher prices.
Many firms responded by increasing their own selling prices. Although output-price inflation eased slightly from August, it remained strong compared with historical trends. Passing higher costs on to customers may protect profit margins, but it can also weaken demand further by making products and services less affordable.
Wage inflation, by contrast, slowed to its lowest level in eight months. The moderation suggests that labor costs were not the main source of the latest increase in overall expenses. Instead, energy, materials and logistics placed the greatest pressure on companies’ budgets.
Businesses remained cautiously optimistic about the coming year. Survey respondents continued to expect production to improve over the next 12 months, possibly because of hopes for stronger investment, better domestic demand or an easing of regional tensions. However, confidence weakened from August, when expectations reached their highest level in more than four years.
David Owen, a senior economist at S&P Global Market Intelligence, said the September figures showed that Egyptian companies were still demonstrating resilience despite the loss of momentum. He pointed to the continued rise in employment, the increase in outstanding work and the persistence of positive expectations as evidence that firms had not abandoned their longer-term plans.
At the same time, Owen warned that the immediate outlook remained difficult. New orders were falling more quickly, cost pressures remained high and companies were again raising selling prices. Continued conflict in the Middle East, including attacks affecting commercial shipping, could further increase transportation and import costs.
The latest survey presents a mixed picture of Egypt’s private economy. Hiring and business expectations offer some encouragement, but they are being overshadowed by declining production, weaker sales and persistent inflation. Unless customer demand strengthens and supply-related expenses begin to ease, non-oil private companies are likely to remain under pressure in the months ahead.
