Egypt’s non-oil private activity expanded at its highest rate in over four years in January, buoyed by a solid increase in output and sales volumes, according to S&P Global’s latest Purchasing Managers’ Index report (pdf). The headline reading rose to 50.7 from 48.1 in December , marking the second time the country's non-oil activity has hit the expansion territory since November 2020.

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An uptick in new orders and output levels drove the overall improvement, with the output sub-index rising to 51.1 from 47.1 in December, and the new orders sub-index rising to 51.3 from 46.4, according to Reuters. The rise was driven by “an improvement in economic conditions and falling inflationary pressures,” which gave participants in the survey more confidence to place new orders, particularly in the manufacturing, construction, and wholesale and retail sectors. Many firms also reported having to expand their output during the month to meet increased customer demand.

"Growth at the start of 2025 was welcome news for Egypt's non-oil private sector, which has struggled in recent times amid rampant inflation and the wider effects of regional instability,” S&P Global senior Economist David Owen said. “The ceasefire [agreement] between Israel and Hamas likely added confidence to markets in January,” he added.

Input prices rose at their softest pace since May, which “helped to soften cost pressures and fuel a pick-up in sales for only the second time in over three years,” Owen said. While some respondents cited increased cost pressures driven by a stronger USD, other non-oil firms — particularly in the construction sector — saw reduced material prices during the month. This also helped drive the purchase of inputs, which contributed to a slight increase in firms’ input inventories.

THE MACRO PICTURE-

The reading came in line with expectations for the macro economy in 2025, Economist Mona Bedeir told EnterpriseAM, noting that inflation, GDP growth, and real sector performance were projected to see a gradual recovery this year. Bedier cited stabilizing inflation rates, the benefits of a stable FX market, and improved local supply chains in the wake of an easing of regional and global tensions. Overall growth rates are also set to benefit from an uptick in momentum in the manufacturing and construction sectors.

We might not be out of the woods yet, think some analysts, including HC Securities’ Heba Mounir, who told EnterpriseAM that “While the first PMI reading for 2025 showed a strong bounce back, compared to December’s performance and the past two years except August, a one-off expansion should not be seen as a trend until it holds on for the coming months and prove that the non-oil business activity has fully recovered after two tough years.” Bedier explained that “we should wait and see if the non-oil private sector manages to stabilize in the growth territory over the next few months to make sure that the PMI readings are consistent with the macro outlook for 2025.”

Cautious optimism is required, because while the Gaza ceasefire and easing inflation readings supported January's PMI figures, lingering uncertainty over regional tension and the anticipated subsidy cuts could pose potential risks to the economy going forward, Mounir and Bedeir told us.

EGP stability appears set to brighten the outlook, with Mounir ruling out a sharp devaluation in the local currency similar to what we saw over the past two years. “That said, a 5% fluctuation in the exchange rate as the prime minister hinted last year, will have a limited impact on private firms and consumers, which in turn would help the non-oil economy sustain its rebound.”

Remember: The EGP crossed the 50 mark against the greenback in December and slipped even further in the first weeks of the year, but the local currency has since been on the mend having strengthened by 1.2% against the USD in January. “The issue is more about a strengthening USD than it is a weakening EGP,” Al Ahly Pharos Senior Economist Esraa Ahmed told EnterpriseAM last week in reference to a runaway greenback following the election of Donald Trump in November.

The survey suggests that inflation will likely continue its downward path in the coming months. Output prices at non-oil firms inched up last month at the softest pace in four and a half years, indicating that “firms are facing a lack of pressure to increase their fees in the current business environment,” Owen noted. Cooling input and output price inflation supports Capital Economics’ view that “inflation will slow sharply at the start of this year and back to within the Central Bank of Egypt’s inflation range target, paving the way for the monetary loosening cycle to begin in the coming months,” MENA economist James Swanston wrote in a note.

Remember: Egypt’s annual headline urban inflation dropped to 24.1% in December, down from 25.5% in November, marking the nation’s lowest inflation reading since December 2022. On a monthly basis, headline inflation also calmed, falling 0.3 percentage points to 0.2%. Some analysts argue that the worst effects of subsidy cuts and price hikes that included cigarettes and other items may have passed. A favorable base effect is also expected to come into play in reducing inflation figures.

Total employment in Egypt stabilized during the month, following two months of job cuts across the non-oil sector. However, overall hiring remained subdued, as increased hiring across some businesses was offset by reductions in others.

Despite the recovery signs, overall business sentiment in Egypt is still uneasy. Business expectations in Egypt slipped to a historically low level in January, “showing that firms are still uncertain about economic stability over the longer term,” Owen said.

The international press also took note of the report: Reuters | Bloomberg

ELSEWHERE IN THE REGION-

  • Saudi Arabia’s PMI rose to 60.5 in January marking the Kingdom’s best performance since September 2014.
  • Kuwait’s PMI dipped to 53.4 in January, down from 54.1 in December, but reading well above the 50.0 mark that marks growth.
  • Qatar’s PMI dropped to 50.2 in January (pdf), from 52.9 in December, marking the first drop in four months.
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