In its report on Egypt, S&P stressed that the country’s non-oil economy remained in a steep downturn in February, as demand continued to be hit by high inflation and supply chain pressures.
As a result, employment fell at the fastest rate in nine months and business confidence was at a near-record low, according to the report.
On the other hand, the report pointed out that inflationary pressures on the sector’s businesses eased from January's recent highs.
"The latest PMI data for Egypt continued to signal a troubled market in February, but with some relief after a rocky start to the year. After hitting a four-and-a-half-year high in January, the rate of purchase price inflation softened to the lowest since October, as firms suffered to a lesser extent from weaker exchange rates and rising import costs”, David Owen, Senior Economist at S&P Global Market Intelligence explained.
“Similarly, output charge inflation was the softest for four months, after posting a near six-year high in the previous month. The findings provide some hope that inflation may start to soften after reaching 25.8 percent in January”, Owen further noted.
The report also noted that the non-oil companies reduced their purchasing activity significantly in February and, consequently, the rate of contraction was the softest recorded in four months.
As per the report’s survey, companies mentioned that high material prices forced them to cut buying and utilise current stocks, contributing to a decrease in input inventories for the fourth consecutive month.
Owen noted that the downturns in output and new orders were not as severe in February compared to the first month of the year, as higher prices led to a solid, but softer drop in new business intakes.
However, the sustained fall in demand led businesses to cut employment levels at the fastest rate in nine months, while input buying also decreased sharply, according to Owen.
"Efforts to streamline capacity coincided with another bleak assessment of future output, with expectations falling for the second month running and posting only just above the record low seen in October last year", Owen further noted.
He added that continued demand weakness, persistent inflation and ongoing import controls to restrict FX flows indicate that companies are likely to face a prolonged downturn in 2023.
The report said that output levels for private businesses continued to contract at a sharp pace through the first quarter of 2023, as companies reported weakening demand conditions amid soaring prices.
In this respect, the report noted that the rate of decline eased from the previous month but remained sharp.
Moreover, new business intakes fell at a slower, but still marked pace in February, which reflects a reduction in client demand due to high inflation.
Meanwhile, export sales fell in February for the second consecutive month, and to a sharp degree, because of weak foreign economic climate, according to the report.
As a result, businesses were even more subdued in their outlook for the coming 12 months, as overall expectations fell since the start of the year and were just above the record low seen in October last year.
“Notably, just 5 percent of survey respondents forecasted a rise in output, amid suggestions that current headwinds, including weak demand, severe inflation, import controls and foreign currency shortfalls, are likely to continue throughout 2023”, said the report.