Non-oil sector hits two year low as regional volatility stokes costs

Egypt’s non-oil private sector saw its fastest deterioration in operating conditions since April 2024 in March, reflecting a sharp dip in output and new orders that saw them both hit their lowest levels in nearly two years, according to the latest S&P Global Egypt Purchasing Managers’ Index (PMI) (pdf). The headline index fell for a fourth consecutive month, dropping 0.8 points from the month before to 48.0 in March, placing it firmly below the 50.0 mark threshold that separates contraction from growth that it has remained under for the last three months.

SOUND SMART- The reading remains above the 32.0 threshold that signals annual GDP growth. Egypt only ever dipped below this level once in April 2020 on the back of the Covid 19 pandemic.

The ongoing war in the region stands out as the primary drag on macroeconomic momentum, with those surveyed reporting that the war has “dampened client demand, partly through an increase in price pressures,” according to the report. Beyond direct demand, the war has triggered a spike in input costs, with firms reporting the sharpest uptick in purchase prices since late 2024. “As the USD strengthens amid a flight to safety, and energy prices remain elevated, Egyptian companies are clearly feeling the impact on their balance sheets,” S&P Global’s Senior Economist David Owen wrote.

Uncertainty and soaring costs drove a steeper drop in new sales compared to February, with manufacturers being the hardest hit and bearing the brunt of rising expenses. In response to war-linked commodity price spikes and a weaker EGP, firms raised output prices at the fastest pace in 10 months.

Despite the broader downturn, internal operations showed minor signs of stabilization, with purchasing activity rising slightly in March after two months of decline. Headcounts were “broadly stable following job cuts since the end of last year,” though companies remain cautious about expanding payrolls amid ongoing volatility.

Business sentiment fell into negative territory for the first time in the survey’s history, marking the first occasion where firms have “predicted a fall in output over the next 12 months.” While described as “mild,” the pessimism is largely driven by “uncertainty surrounding the Middle East war.”

Despite the 23-month low reading, “the latest figure of 48.0 still relates to annual GDP growth of around 4.3%,” Owen wrote, indicating that, together with stronger readings earlier in 1Q, the non-oil sector remains on a “solid underlying growth path.”