Muted price pressures support Egypt's non-oil sector expansion in February, says PMI

The health of Egypt's non-oil private sector continued to improve in February, extending the upward trend that began in early 2025. Businesses reported a sustained recovery in customer demand, marking the first time in over four years that business conditions have improved for two consecutive months. This positive momentum suggests a strengthening economic environment for the sector.

The seasonally adjusted S&P Global Egypt Purchasing Managers' Index (PMI) fell from a 50-month high of 50.7 in January to 50.1 in February. Nevertheless, the index remained slightly above the neutral threshold of 50.0, indicating a continued improvement in the health of Egypt's non-oil private sector. This marginal decrease doesn't negate the overall positive trend observed in the sector.

David Owen, Senior Economist at S&P Global Market Intelligence, stated, "Combined with the rise in January, the data shows that the first two months of the year were the best start to the survey's history." This highlights the significance of the recent performance in the context of the survey's historical data, showcasing a promising beginning to the year.

The sector's recovery also benefited from a second consecutive month of subdued price pressures, with the rate of inflation in average cost burdens rising slightly from January but remaining historically low. Output prices rose only marginally. According to monitored businesses, the recovery in market conditions and customer demand continued to play a significant role in new order growth. After only one instance of growth in the previous 40 months, new work in Egypt's non-oil sector rose for the second consecutive month.

However, the rate of expansion slowed from January and remained modest, with a decline in manufacturing orders placing a slight drag on overall performance. Increased demand prompted businesses to increase purchases for the third consecutive month, with the latest rise marking the largest increase recorded in 3.5 years. This surge in purchasing activity reflects the growing confidence among businesses in meeting future demand.

Owen added, "Stronger customer spending appears to have revitalized the market, driving higher sales and supporting an improvement in operating conditions. This positive momentum has led to increased business spending." Egyptian non-oil sector companies also noted that they were working to secure new inputs as market conditions strengthened. However, they faced challenges in retaining and hiring new staff, leading to a third decline in employment in four months. These employment challenges could potentially hinder future growth if not addressed.

Owen added, "The current price pressures are relatively low compared to those experienced in 2024, suggesting that inflation may continue to fall, at least in the short term. On the other hand, the job market is mixed at best, with the manufacturing sector struggling to secure new orders. Economic and geopolitical risks remain significant, leading to another subdued outlook for the year ahead." These factors highlight the complexities and uncertainties facing the sector despite the recent improvements.

Compared to the trends observed in 2024, input cost pressures in Egypt's non-oil sector remained relatively modest. While there were some reports of slightly faster purchase price inflation due to higher material prices caused by a stronger dollar, this was partially offset by a decline in staff costs. Cost pressures were more pronounced for manufacturing and construction firms compared to other sectors.

Despite rising demand, businesses remained cautious about the economic outlook. Expectations for business activity over the next 12 months fell to their lowest level since November, with only 5% of firms expressing optimism about future output trends. This cautious sentiment underscores the underlying uncertainties and risks that continue to weigh on the sector's outlook.