Businesses across Egypt’s non-oil sector reported an expansion in activity in August, with a rise in output levels for the first time in exactly three years. The positive growth came amid further reports of a demand recovery, despite new work easing slightly for the second month straight. Companies in Egypt also expanded their inventories and hired additional staff as optimism toward the country’s future outlook improved to the strongest since mid-2022.
Egypt’s headline S&P Global Purchasing Managers’ Index (PMI) rose from 49.7 in July to 50.4 in August, signaling the first improvement in the health of Egypt’s non-oil private sector since November 2020.
“Business conditions are on the mend according to the August survey data, as the PMI’s jump into above-50 territory indicated an improvement at non-oil businesses for the first time since late 2020,” stated David Owen, senior economist at S&P Global Market Intelligence.
Inflationary pressures persist
Egypt’s non-oil sector saw a sharp pick-up in inflationary pressures as firms faced greater costs due to a weakening in the pound against the U.S. dollar. Purchase prices rose significantly, leading to a steep increase in selling charges as firms sought to protect their margins.
“Rising price pressures are another risk – August data signaled the fastest uplifts in costs and charges for five months – which has the potential to limit spending and weaken the market recovery,” added Owen.
Non-oil firms faced greater challenges on the cost side in August. The rate of input price inflation accelerated for the third month straight, largely due to the impact of a weaker exchange rate against the U.S. dollar. Firms also reported an increase in transport costs, which contributed to an increase in delivery times. Staff wages increased as firms raised salaries further amid cost-of-living pressures.
The increase in cost pressures impacted growth in August by dampening the expansion in business activity. Efforts to pass through higher costs to customers also resulted in an increase in average prices charged. Moreover, the rate of charge inflation was sharp and much faster than in July, putting some pressure on client demand.
Demand conditions stabilize
Despite the rise in prices, four out of the five sub-components positively influenced the headline index in August, including renewed rises in output and stocks of purchases. New orders were the only negative factor, although firms reported only a marginal drop overall.
The past three months have been broadly indicative of a stabilization in demand conditions across Egypt’s non-oil sector, with firms commenting on a market recovery amid improved macroeconomic factors and rising export business. This stability led firms to increase their activity for the first time in three years in August, although the pace of expansion was only marginal.
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Staff levels rise
Businesses in Egypt’s non-oil sector raised their staffing levels for the second month in a row in August. Moreover, they raised their purchases of inputs, which subsequently led to another rise in stock levels. This expansion reflected stronger confidence among firms that sales volumes will grow in the near term. Expectations towards business activity were also robust in August, rising to the highest level in just over two years.
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