Egypt's non-oil private sector contracted at its sharpest pace in nearly three-and-a-half years in June, as demand weakness intensified and supply disruptions persisted, according to data from S&P Global.
PMI Falls to 46 in June
The headline S&P Global Egypt Purchasing Managers' Index (PMI) fell to 46 in June from 47.1 in May, marking a sixth consecutive month below the neutral 50 threshold and the lowest reading since January 2023.
This sharp contraction underscores the impact of the Middle East conflict on trade, supply chains, and overall demand. The reading contrasts with Saudi Arabia, where the non-oil PMI climbed to 53.3 in June, while Kuwait and Qatar remained in contraction at 46.4 and 47.6, respectively, highlighting uneven business conditions across the Gulf and wider Middle East.
New Orders Plunge at Fastest Pace Since 2022
New orders fell at the fastest pace since November 2022, with nearly 27 percent of firms reporting weaker sales compared with just 11 percent reporting improved sales. S&P Global's PMI-GDP model suggested annual growth would cool to about 3.8 percent by the end of the second quarter, down from 5 percent a year earlier.
David Owen, principal economist at S&P Global Market Intelligence, said: “The PMI declined to 46 in June, lending greater confidence to forecasts of a softening of GDP growth in Q2.” He added: “The Middle East conflict has exacted a toll on the domestic non-oil sector, with the latest data signalling the steepest decline in new work in over three-and-a-half years.”
Businesses Cite Liquidity Constraints and Supply Disruptions
Businesses pointed to a combination of liquidity constraints among clients, raw material shortages, slower supply chains, and elevated prices as the main drags on demand. The fallout from the Middle East conflict was cited repeatedly as a common thread. External trade also weakened as the conflict disrupted regional commerce.
Output fell for a fifth consecutive month, with the rate of decline the steepest since early 2023. Employment continued its downward trend, though firms said the cuts came mainly through natural attrition rather than active layoffs, with the pace of job losses easing slightly from May.
Purchasing Activity Slows, Inventories Built as Buffer
Purchasing activity slowed, even as firms continued to build inventories as a buffer against expected price rises and further supply-chain disruption. Supplier delivery times lengthened again, albeit at a softer pace than in May, with raw material shortages, disruption to shipping in the Strait of Hormuz, and rising fuel costs cited as factors.
Inflationary Pressures Ease, Wage Growth Remains High
Inflationary pressures eased considerably from May's near-record highs, with both output price and input cost inflation cooling. Wage growth, however, stayed elevated, posting its second-fastest increase since January 2018.
“The moderation in inflationary pressures recorded in the June survey data therefore offers some relief to firms,” Owen said, adding that “further easing appears possible should global energy prices decline and regional tensions cool, which would add support to the improved outlook for output seen over the past couple of months.”
Future Expectations Remain Positive Despite Current Woes
Despite the deteriorating current conditions, businesses' expectations for future output remained higher than earlier in the year, with some citing hopes of reduced conflict-related disruption and increased government support, although overall sentiment softened slightly compared with May.
