Egypt's non-oil private sector contraction slows in May, PMI shows

Egypt's non-oil private sector contraction softened in May, with the S&P Global Egypt PMI rising to 49.5 from 48.5, driven by slower declines in output and new orders; however, purchasing activity fell at the fastest rate in seven months, and employment continued to drop. Input price inflation, fueled by rising supplier costs and exchange rate volatility, led to increased selling prices, while business optimism remained weak due to concerns over persistent price pressures and low demand.

Analysis

Egypt's non-oil private sector demonstrated a marginal improvement in May, with the S&P Global Purchasing Managers’ Index (PMI) rising to 49.5 from 48.5 in April, signaling a softer contraction though still below the 50.0 growth threshold. This modest uplift was primarily driven by slower declines in output and new orders, with their respective sub-indices improving to 49.5 and 49.1, both from 47.4 in April, indicating that fewer companies reported cutbacks in customer sales. Despite these less severe contractions, significant headwinds persist: businesses reduced purchasing activity at the most rapid pace in seven months, and employment fell for the fourth consecutive month, underscoring ongoing operational constraints. Furthermore, input price inflation accelerated sharply due to rising supplier charges and exchange rate volatility, compelling firms to pass on some of these increased costs through higher selling prices. S&P Global Market Intelligence noted that while key metrics still point to deteriorating business conditions, the pace of decline was less acute than in April and softer than historical survey trends, with renewed growth in the manufacturing sector providing some support. Business optimism, reflected by the future output index improving slightly to 53.0 from 52.7, remains subdued by historical standards due to persistent concerns over stubborn price pressures and low demand, which continue to weigh on output expectations.

Key Decisions for Investors

• Investors should view the slight uptick in Egypt's PMI with cautious optimism, recognizing that the non-oil private sector remains in contractionary territory despite the slower rate of decline.
• Monitor key sub-indices closely, particularly the sharp fall in purchasing activity and continued employment reduction, as these could signal deeper underlying weaknesses or impede a sustained recovery if they persist alongside high input cost inflation.
• Given the mixed signals – softer contraction in output and new orders versus accelerating input costs and declining purchasing/employment – a highly selective approach to investments exposed to the Egyptian non-oil private sector is warranted until more consistent signs of stabilization and demand recovery emerge.