Despite this improvement, the S&P report on Egypt noted that it indicates a solid deterioration in the health of the non-oil business sector.
The report said the accelerated inflation that Egypt is experiencing that is hampering the Egyptian non-oil economy indicated further declines in both output and new business.
“That said, the two metrics registered softer falls than in November, while cost inflation also slowed from November's over four-year high. Whilst output expectations improved to the highest since June, they still reflected a subdued level of sentiment towards the economic outlook," the report explained.
Accordingly, the sector's companies saw reduced employment levels for the second time in three months and cut input purchases at a rapid pace amid the ongoing supply constraints, the report pointed out.
David Owen, Economist at S&P Global Market Intelligence, expounded that Egypt’s PMI reading for December signals a decline in operating conditions across the non-oil business sector, as output and new business fell at sharp but softer rates, with companies mainly linking the downturn in sales to the elevating inflation.
"The pound's depreciation against the US dollar in recent months continued to drive input costs higher, although the latest data signalled a softer rate of inflation than November's over four-year record," Owen said.
Nonetheless, output prices continued to rise at a rapid pace at the end of the year as firms passed a greater proportion of their expenses onto clients, according to Owen.
In this respect, the report explained that output levels were constrained by a significant drop in purchasing activity in December, which fell for the 12th successive month and at the strongest rate since June.
In addition, higher material prices limited buying activity, although some companies, which the report surveyed, said that poor liquidity and supply shortages due to import control regulations were behind the fall.
The report also noted that input shortages led companies to draw down stocks to meet the local demand, leading to a further drop in inventories.
“Cost concerns led firms to reduce their headcounts and deplete input inventories in December, leading to an additional rise in backlogs of work,” Owen further explained.
On the other hand, the report's survey indicated that companies are more optimistic about activity in 2023, with hopes that inflation in Egypt will be contained in 2023 through interest rate hikes and the subsequent slowing of demand.
Short link: