File Photo: Workers at agriculture and fruit exporting company. AP
The headline PMI rose to 47.1 in May from 46.6 in April, marking the fifth straight month in 2026 below the neutral 50.0 threshold that separates growth from contraction.
The PMI reading points to the conflict in the Middle East being more likely to “depress GDP growth in the second quarter,” compared to rates seen at the end of 2025, according to S&P Global Senior Economist David Owen.
Demand weakened, but lowered firms’ purchasing activity only modestly in May. Firms also recorded the largest inventory expansion in almost three years, in preparation for price increases in the future.
Businesses' new orders dropped, with the rate of decline similar to that in April, which marked the sharpest decline of orders in almost three years, as higher inflation discouraged customers. Inflation accelerated by 1.2 percent month-on-month in April 2026.
According to the report, almost half of private businesses that answered the survey reported higher cost pressures, with input prices rising at the fastest rate since January 2023. This comes on the back of higher fuel and electricity costs, wage pressures, and currency depreciation that reached their strongest level since January 2018.
The Egyptian Pound remains EGP 4.07 or 8.5 percent weaker in value than its pre-conflict rate of EGP 47.9, but stabilized at EGP 52/$1 as of earlier this week.
Output also dropped due to wholesale and retail services, but its pace remains marginally moderate compared to April’s; this is unlike manufacturing and construction services, which rebounded slightly after a several-month decline.
Firms reported a “historic surge,” in selling prices, Owen said. This was to offset profit compression, which caused more customers to take on higher costs rather than firms absorbing them.
Furthermore, supply chain disruptions deteriorated in May, with delivery time widening at its fastest pace in almost four years, due to the regional conflict causing shipping route disruptions, while price volatility caused supplier hesitancy.
This all led to a “heavy impact on firms' labour requirements,” Owen confirmed. Firms responded to lower sales by not replacing voluntary departures of employees and active redundancies. Employment cuts surged at their fastest pace since June 2020.
Reducing employees alongside difficulties in supply created capacity constraints and the fastest rise in work backlogs since September 2023.
Business sentiment improved to its highest level since August 2024, and firms are hopeful for improved economic conditions and currency recovery despite major concerns regarding inflationary prices.
The Central Bank of Egypt warned that its inflation target of 7 percent (±2 percentage points) by Q4 2026 will be exposed to upside risks if the regional conflict persists, while the International Monetary Fund (IMF) pointed out that inflation remains volatile and will hinder economic instability if not managed carefully.
It’s worth noting that the IMF staff is currently in Cairo to conduct the seventh review of Egypt’s Extended Fund Facility (EFF) programme and the second review under the Resilience and Sustainability Facility (RSF). Upon the reviews’ conclusion on 15 June, the IMF will potentially unlock around $1.6 billion in new financing for Egypt.
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