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Egypt saw its non-oil private sector slip back into the red for the first time in four months, but it’s not all bad news. The country’s headline figure in January slipped 0.4 percentage points to 49.8, positioning the sector — but hopefully not too, our optimism — just below the all-important 50.0 mark is the threshold separating contraction from growth and just above its long-run average, according to S&P Global’s latest Purchasing Managers Index report (pdf).
On the plus side, output rose for the third consecutive month, marking the longest streak of expansion since late 2020. This was supported by stronger demand from abroad, though overall new orders slipped slightly compared to December.
With output rising but new work falling, firms focussed on clearing backlogs at the quickest rate in nearly three years. This increase in spare capacity led companies to leave positions vacant, resulting in the largest decline in employment since October 2030.
In a positive turn, cost pressures softened, with total input costs rising at their joint-slowest pace in ten months. This allowed firms to reduce their selling prices for the first time since mid-2020, a move intended to stimulate client spending.
Why it matters: The contraction in the headline PMI is a technicality in many ways. While the 49.8 reading suggests a slight dip, the index remains significantly above its long-run average and consistent with healthy annual GDP growth. The pivot from five years of relentless price hikes to the first actual drop in selling charges since July 2020 is the clearest signal yet that the private sector is moving from a survival stance to be focused on being competitive when it comes to prices.
The drop in price indices is fueling expectations for an aggressive monetary easing cycle. “Both the input and output price components fell to their lowest since 2020, adding to the signs of disinflation and supporting our view that the Central Bank of Egypt will cut interest rates by 700 bps, to 13.00%, this year,” Capital Economics’ James Swanston wrote in a note.
Non-oil companies remain positive about the next 12 months, but the level of optimism is described as “marginal: as firms maintain a cautious stance of future activity levels.
