Egypt’s non-oil business activity expands for first time in three years

Output, employment and purchasing activity increased in August

Traditional lanterns at a market in Cairo. Purchasing activity in Egypt rose last month, according to the latest survey. EPA

Business activity in Egypt's non-oil private sector economy expanded for the first time since August 2020, as output grew on the back of higher demand.

The seasonally adjusted S&P Global Egypt purchasing managers’ index ­– a crucial gauge of the nation’s non-oil economy – rose to 50.4 in August, from 49.7 in July, staying above the neutral 50 mark that separates growth from contraction.

“Business conditions are on the mend according to the August survey data,” said David Owen, senior economist at S&P Global Market Intelligence.

“Several of the PMI sub-indexes signalled growth in August, with increases in output, employment and purchasing activity showing that firms were confident enough to expand their activity and capacity. Business expectations were also up, adding to signs that firms are hopeful that economic conditions are set to be more stable.”

Demand recovered in the Arab world's most populous country, with companies hiring and boosting their inventory as optimism about future business activity rose to the highest level in just over two years.

This was the second month in a row that businesses increased recruitment amid expectations of more business activity, the survey's results showed.

Inflationary pressure at non-oil businesses also increased as companies faced greater costs due to a weakening in the pound against the US dollar. As a result, selling charges rose as businesses sought to protect their margins amid higher input costs.

The rate of input price inflation accelerated for the third consecutive month, while transport costs were also reported to have increased, leading to a lengthening of delivery times.

Wages also increased as businesses raised salaries further to counter cost-of-living pressures.

Businesses noted that increased cost pressures had acted as a headwind to growth in August by dampening the expansion in business activity.

“The situation appears mixed, with many companies still reporting weak client demand, leading to another slight drop in total new orders,” Mr Owen, said. “Rising price pressures are another risk – August data signalled the fastest uplifts in costs and charges for five months – which has the potential to limit spending and weaken the market recovery.”

Egypt has been enacting an International Monetary Fund-backed economic reform programme since 2022. This has led to the country devaluing its currency four times and substantially cutting food and energy subsidies, although some remain in place.

In March, the IMF approved an $8 billion loan package for Egypt to support the country's flagging economy that has also been affected by the Israel-Gaza war.

The programme adds $5 billion to the $3 billion, 46-month Extended Fund Facility signed in December 2022 and enables Egypt to immediately draw $820 million.

In a report last month, the IMF said Egypt's path to economic recovery remained challenging as it struggles with the effect of regional conflicts and attempts to meet the conditions set by its loan programme.

The Egyptian economy has shown signs of weakness in the first half of the fiscal year 2024-25, the fund said, while noting that a rise in investor confidence has also been recorded, brought on by the flotation of the Egyptian pound in March.

The war in Gaza and its regional repercussions have also been a major driving force behind Egypt’s sluggish growth throughout the first half of 2024.

The war has disrupted maritime traffic in the Red Sea and resulted in a 60 per cent drop in Egypt’s Suez Canal revenue, one of the country’s main sources of foreign currency.