Egypt's Non-Oil Private Sector Contracts Further in April: Navigating Economic Headwinds

The S&P Global Egypt Non-Oil Private Sector Purchasing Managers' Index (PMI) declined to 48.5 in April 2025, marking the second consecutive month of contraction and the lowest reading since December 2024. This deepening downturn reflects persistent challenges in domestic and international demand, rising input costs, and cautious business sentiment, even as sectors like construction and tourism show pockets of resilience.

Key Drivers of the Contraction

The April PMI contraction was driven by a sharp drop in new orders (-15% month-on-month) and output (-11% month-on-month), with both sub-indexes falling below 50 for the second month. Firms cited weakened demand from both domestic and international markets, exacerbated by geopolitical tensions and a fragile global economy.

Input costs surged, with a 15% increase in fuel prices driving the fastest rise in input cost inflation in four months. However, companies absorbed these costs rather than raising prices, ending a 56-month streak of output price inflation. This strategy, while stabilizing consumer prices, may squeeze profit margins and deter investment in sectors like manufacturing and wholesale trade.

Sectoral Performance: Winners and Losers

The contraction was not uniform across sectors, revealing stark contrasts:

1. Construction Sector Resilience:
   The construction sector defied the broader downturn, reporting robust growth in output and new work. This reflects government efforts to diversify the economy through infrastructure projects, such as the New Administrative Capital and renewable energy initiatives.

2. Manufacturing and Wholesale/Retail Declines:
   These sectors bore the brunt of the contraction. Reduced demand, coupled with supply chain disruptions and rising fuel costs, led to lower production and inventory cuts.

3. Tourism and ICT: Fragile Gains:
   While tourism (restaurants/hotels) and the ICT sector contributed to GDP growth (18% and 10.4% in Q2 FY2024/2025, respectively), their impact on the PMI was muted. Geopolitical instability in the region dampened international travel, and ICT growth relied heavily on digital infrastructure projects, which may not offset broader sectoral weaknesses.

Implications for Investors

The PMI data underscores both risks and opportunities for investors in Egypt’s non-oil private sector:

• Risks:
• Demand-driven contraction: The decline in new orders and output signals weak consumer and business confidence, which could persist if global trade tensions and regional instability linger.

• Input cost pressures: A 15% rise in fuel prices highlights vulnerability to energy price volatility, particularly for sectors reliant on logistics and manufacturing.

• Opportunities:

• Construction and infrastructure: Firms involved in government-backed projects (e.g., housing, renewable energy) may benefit from long-term growth plans.
• Tourism recovery: Investors in hospitality and travel-related services could gain if geopolitical risks ease and international travel rebounds.

Data-Driven Outlook

The April PMI contraction raises questions about Egypt’s ability to sustain its 4.3% GDP growth in Q2 FY2024/2025 amid sectoral imbalances. While structural reforms and private investment (up 35.4% in Q2) provide a foundation for recovery, near-term risks remain elevated:

Key statistics to watch:
- Employment trends: A third consecutive month of workforce reductions (down 0.8% month-on-month in April) signals caution in hiring, which could slow labor market recovery.
- Business confidence: Despite a marginal uptick in April, confidence remains below long-term averages, reflecting lingering uncertainty over trade policies and cost management.

Conclusion: Navigating the Crosscurrents

Egypt’s non-oil private sector faces a challenging path to recovery. While sectors like construction and tourism offer targeted opportunities, the broader contraction underscores the need for sustained demand revival and cost mitigation. Investors should prioritize diversification—tilting toward infrastructure and tourism while avoiding overexposure to manufacturing and wholesale trade.

The data also highlights the importance of monitoring geopolitical developments and energy prices, as these could either amplify or alleviate the current headwinds. For now, Egypt’s non-oil sector remains in a holding pattern, with growth hinges on stabilizing demand and curbing cost pressures—a balancing act that will test policymakers and businesses alike.

In summary, April’s PMI decline is a reminder that Egypt’s economic transition is far from complete. Investors navigating this landscape must balance short-term risks with the potential rewards of a sectoral recovery rooted in strategic infrastructure and tourism-driven growth.