Egypt’s Non-Oil Private Sector Contracts at Fastest Pace Since Early 2023 Amid Weak Demand

Egypt’s non-oil private sector recorded its sharpest contraction in nearly three and a half years in June, as weakening demand, supply chain disruptions and regional tensions continued to weigh on business activity, according to the latest S&P Global Purchasing Managers’ Index (PMI).

The headline PMI fell to 46 in June from 47.1 in May, marking the sixth consecutive month below the 50-point threshold that separates growth from contraction. The latest reading was the lowest since January 2023 and pointed to worsening business conditions across the country’s non-oil economy.

The decline contrasted with trends elsewhere in the region. Saudi Arabia’s non-oil PMI rose to 53.3 in June, indicating continued expansion, while Kuwait and Qatar remained in contraction territory with readings of 46.4 and 47.6 respectively, highlighting mixed economic performance across the Middle East.

S&P Global said the ongoing regional conflict continued to disrupt trade, supply chains and customer demand, placing increasing pressure on Egyptian businesses.

David Owen, principal economist at S&P Global Market Intelligence, said the latest data strengthened expectations that Egypt’s economic growth slowed during the second quarter.

He noted that the regional conflict had significantly affected the domestic non-oil sector, with businesses reporting the steepest decline in new orders since November 2022.

Nearly 27% of surveyed firms reported lower sales during June, while only 11% recorded an improvement in new business. S&P Global’s economic model also suggested annual GDP growth could slow to around 3.8% by the end of the second quarter, compared with 5% during the same period last year.

Businesses attributed weaker demand to a combination of tighter liquidity among customers, shortages of raw materials, slower deliveries and higher operating costs. Many firms also pointed to disruptions in regional trade linked to tensions in the Middle East.

Production declined for a fifth consecutive month, with output falling at its fastest pace since early 2023. Employment also continued to edge lower, although companies said workforce reductions mainly resulted from natural staff turnover rather than widespread layoffs. The pace of job losses eased slightly compared with May.

Purchasing activity remained subdued as firms reduced buying levels while continuing to build inventories to protect against future supply shortages and possible price increases. Supplier delivery times lengthened again, with businesses citing raw material shortages, shipping disruptions through the Strait of Hormuz and higher fuel costs as key challenges.

Despite the difficult business environment, inflationary pressures showed signs of easing. Both input costs and selling price inflation slowed from the elevated levels recorded in May. However, wage growth remained relatively strong, posting its second-fastest increase since January 2018.

Owen said moderating inflation offered some relief for businesses and noted that further improvement could occur if global energy prices decline and regional tensions ease.

Although current conditions remain challenging, many companies expressed cautious optimism about future activity, citing hopes for reduced conflict-related disruptions, improved supply conditions and additional government support in the months ahead.