Nonetheless, the reading remains below the threshold of 50, indicating a deterioration in business conditions, S&P noted. 

“Egypt's non-oil private sector economy remained under pressure at the end of the second quarter of 2023, with the PMI once again signalling a deterioration in business conditions,” the report stated.

Output and new orders experienced drops in June, albeit at weaker rates. On the other hand, inflationary pressures cooled slightly to a 16-month low and remained significantly softer compared to January.

Output across Egypt's non-oil private sector maintained its downturn.

According to the report, total business activity continued to decline at the end of the second quarter (April-June) of 2023, due to price pressures, liquidity issues, and weak demand.

The rate of decline observed was the weakest in the past 21 months, the report added.

Egypt’s annual headline inflation returned to its upturn to hit 33.7 percent in May, up from 15.3 percent in May 2022, according to readings the Central Agency for Public Mobilization and Statistics (CAPMAS) released in June.

After securing the International Monetary Fund's (IMF) approval of the $3 billion loan deal for Egypt in December, the Central Bank of Egypt (CBE) set two targets for inflation to be attained through 2026.

Accordingly, the CBE set the inflation target at seven percent (±2 percent) on average by the fourth quarter of 2024 and five percent (±2 percent) on average by the end of 2026.

"Egypt’s PMI retained its upward momentum in June, rising closer to the critical 50 threshold that marks stabilisation. At 49.1, the index reached its highest level in almost two years.

“Behind June's sustained uplift in the PMI were output and new orders, which similarly showed rates of decline softening amid reports from some survey members that demand conditions were beginning to show greenshoots of recovery,” principal economist at S&P Global Market Intelligence Joe Hayes said.

Demand fell in June to the softest level since December 2021, the report noted.

“While high prices and subdued economic conditions reportedly weighed on sales performances, some companies saw an uplift in certain parts of the market. The latest survey data implied that any improvements were driven by domestic clients. However, as new export orders fell at a sharp and accelerated pace that was the strongest in nine months,” read the report.

As a result, non-oil private sector companies in the local market reduced their purchasing activity as well as their stocks of inputs, said the report.

"However, despite positive directional movements in a number of sub-indices, business confidence fell to its second-lowest level on record, highlighting a sombre mood among businesses across Egypt's non-oil private economy. If key survey indicators such as output and new orders can sustain their upward current trajectory, we may see an improvement in business sentiment in the coming months,” Hey explained.

Going forward, Egyptian non-oil companies’ expectations for the sector activity over the coming 12 months are not at their brightest.

“Growth expectations were only mildly positive and at their second weakest since the series began in April 2012,” the report pointed out.