Egypt’s private sector falters as war pressures push PMI to near two-year low

Egypt’s non-oil private sector slipped deeper into contraction in March, with business activity weakening to its lowest level in nearly two years as the ongoing conflict in West Asia fuelled cost pressures and dented demand, according to a closely watched survey released on Sunday.

The headline Purchasing Managers’ Index (PMI), compiled by S&P Global, fell to 48 in March from 48.9 in February — marking the fourth consecutive monthly decline and its weakest reading since April 2024. A PMI reading below 50 indicates contraction, while a figure above that threshold signals expansion.

The downturn reflects mounting strain on Egypt’s private sector as the war in West Asia disrupts trade flows, raises energy costs, and weighs on consumer sentiment across the region.

Demand weakens as costs rise

Survey data showed that both output and new orders — key indicators of business activity — dropped to their lowest levels in nearly two years. Firms widely attributed the decline to reduced client demand, with many citing the regional conflict as a key factor driving economic uncertainty and inflationary pressures.

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Rising input costs remained a major concern. Businesses reported a sharp increase in expenses, driven largely by higher fuel prices and broader commodity cost inflation linked to the conflict. A stronger US dollar further compounded these pressures by raising the cost of imports.

In response, companies passed on some of the burden to customers, with selling prices rising at the fastest pace in 10 months. However, the increases remained relatively modest, suggesting firms were cautious about further dampening demand.

Fuel price hikes add to pressure

The survey comes against the backdrop of recent domestic fuel price hikes, as Cairo moves to manage fiscal pressures amid global energy market volatility. The increase in fuel costs has had a cascading effect on transportation and production expenses, further squeezing businesses and consumers alike.

Business confidence dips into negative territory

For the first time since the survey began tracking sentiment, business expectations for the coming 12 months turned negative. Companies cited uncertainty surrounding the war as a key factor behind their subdued outlook, though the overall level of pessimism was described as mild.

Despite the contractionary reading, there were some signs of underlying resilience. David Owen, senior economist at S&P Global Market Intelligence, noted that a PMI reading of 48 is broadly consistent with annual GDP growth of around 4.3 per cent.

“Recent data suggests the domestic non-oil sector remains on a solid underlying growth path,” Owen said, even as short-term pressures weigh on activity.

Economists say the trajectory of Egypt’s private sector will largely depend on how the geopolitical situation in West Asia evolves, particularly its impact on energy prices, supply chains, and investor sentiment.