As per the report on Egypt, the March PMI reading is still below the neutral ceiling of 50, indicating a decline in the health of the sector.

Meanwhile, Egypt’s non-oil private sector continued to contract sharply in terms of activity and new orders in March, primarily due to the high inflation and supply disruptions that both led to a weakness of demand, according to the report.

The report also mentioned the impact of exchange rate volatility in the local market, which led to significant rises in costs and charges.

The Egyptian pound has been devaluated three times since March 2022, with a fourth devaluation expected soon following the two-percent (200 bps) hike of the key interest rates by the Central Bank of Egypt last Thursday.

“The Egypt PMI continued to signal multiple headwinds on the private sector economy in March, rounding off a bleak first quarter of 2023, as demand remained crippled by high inflation, a weakening currency and import controls. At 46.7, the headline PMI signalled a further solid deterioration in the performance of non-oil companies, driven by steep falls in activity and new business volumes,” said Senior Economist at S&P Global Market Intelligence David Owen.

“Inventories and employment levels also decreased, with purchasing once again impacted by customs restrictions,” he added.

The report said that inflationary pressure on the local market, along with a drop in client demand, continued to negatively impact non-oil businesses, chiefly through a steep reduction in new orders.

Despite the output contraction across the sector softening slightly in March to the lowest rates in five months, ongoing difficulties in accessing key inputs due to import controls and currency restrictions negatively affected the sector's output. 

In this respect, the report noted that companies in the manufacturing, construction and wholesale and retail experienced further sharp drops in output and new orders in March.

The report also highlighted the positive movement in the services economy, which experienced activity growth for the first time since August 2021 amid a renewed rise in sales.

Although the report indicated a sharp decline in purchasing activity in the non-oil business, the decrease was the softest seen since last October. 

“Restrictions at customs led to a fifth consecutive monthly decline in vendor performance. With purchasing down, some firms withdrew from inventories to fulfil new orders, resulting in a modest contraction in input stocks”, said the report.

Owen explained that the sharp rise in Egypt’s headline inflation to 31.9 percent in February – the highest in five-and-a-half years – shows the daunting cost-of-living crisis affecting the country, mainly due to the marked Egyptian pound devaluation over recent months.

“While the latest PMI data suggested a sharp rise in business costs, the rate of inflation was much softer than at the start of the year. Furthermore, the pace of output charge inflation slowed to a five-month low, as companies pulled back on price hikes in a bid to stimulate demand. In addition to a slightly stabler currency market, the data provides some hope that the peak of inflation could be near,” Owen further added.