Egypt’s record-low unemployment masks fastest job cuts since 2020

Egypt’s private sector cut jobs at the fastest pace in nearly six years in May, highlighting growing strains on businesses despite the country’s official unemployment rate falling to a record low earlier this year.

Companies shed workers at the quickest pace since June 2020 as soaring operating costs, fuelled partly by the ongoing conflict in the Middle East, squeezed margins and dampened business activity, according to the latest S&P Global Egypt Purchasing Managers’ Index (PMI).

The deterioration in private-sector employment comes a few weeks after the Arab nation’s unemployment rate fell to six percent in the first quarter of this year, its lowest level on record, according to data from the Central Agency for Public Mobilization and Statistics (CAPMAS).

The contrasting trends underscore mounting pressure on it’s non-oil private sector, which has struggled with rising input costs, weaker demand and supply chain disruptions.

“Job cuts also accelerated to their fastest pace since June 2020, with firms commenting on both active redundancies and decisions to leave vacant positions unfilled,” said David Owen, principal economist at S&P Global Market Intelligence. “The decline indicated that the sustained fall in business activity, combined with intensifying cost pressures, was starting to have a heavy impact on firms’ labour requirements.”

Rising costs and Middle East tensions threaten growth outlook

The latest PMI survey also highlighted that the economic fallout from tensions in the Middle East is increasingly filtering through to the broader economy.

Owen said the findings point to slower economic growth in the months ahead.

“Last month’s PMI findings added to signs that the Middle East conflict is likely to depress GDP growth in the second quarter,” he said. “Companies nevertheless looked to the future with markedly improved confidence, suggesting that the outlook is still hopeful despite the challenges firms face.”

Egypt’s PMI rose marginally to 47.1 in May from 46.6 in April, but remained below the 50-point threshold that separates expansion from contraction for a fifth consecutive month.

A PMI reading above 50 indicates an improvement in business conditions, while a reading below 50 signals contraction.

The survey showed that new orders contracted for the fifth straight month, with the pace of decline remaining close to April’s 37-month low as elevated inflation discouraged customer spending.

Output also fell sharply, although the rate of decline eased slightly from April. Wholesale and retail trade as well as services recorded the steepest contractions, while manufacturing and construction posted modest recoveries after earlier declines.

Cost pressures intensified during the month, with nearly half of surveyed firms reporting higher input costs due to rising diesel and electricity prices, currency weakness and mounting wage pressures. Wage inflation accelerated to its strongest level since January 2018.

According to Owen, businesses responded aggressively to these pressures by passing costs on to consumers.

“Businesses took tangible actions in response to the sharp uplift in cost pressures during May. The principal move was an historic surge in selling charges, with the rate of output price inflation reaching its second highest in the survey’s history, suggesting that the comparatively subdued reactions seen in March and April – when output prices rose far less than costs – were unsustainable,” he said.

Supply chain pressures also intensified, with supplier delivery times lengthening at the fastest pace in nearly four years as shipping disruptions and price volatility affected procurement decisions.

Despite weaker demand, firms increased inventories at the fastest pace in almost three years as they sought to hedge against further price increases.

Business confidence, however, improved to its highest level since August 2024, supported by hopes of improving economic conditions and a recovery in the exchange rate, although inflation concerns remained elevated.

The findings shows that while the labour market in Africa’s second biggest economy remains resilient at the aggregate level, private businesses are increasingly coming under strain, raising concerns about the sustainability of the country’s economic recovery.