In its report on Egypt, S&P Global explained that despite this uptick, the reading remains well below the 50.0 growth threshold, and indicates a deterioration in the non-oil sector’s operating conditions.
Moreover, the sector’s businesses saw a solid deterioration in economic performance in July, as output and new orders decreased further, albeit at slower rates compared to June, according to the report.
It also noted that companies highlighted a sharp drop in demand owing to inflationary pressures, although there were signs that these had begun to soften following June's two-year record.
"Good news was also seen in inflation metrics, which dropped sharply at the start of the third quarter as fewer companies saw a rise in input costs. Higher fuel and raw material prices were still often mentioned, although this was partly tempered as lower commodity prices in recent weeks began to alleviate pressure on supplier charges,” S&P economist David Owen illustrated.
Meanwhile, the report showed that the sector’s new orders continued its decline at the start of the third quarter of 2022, explaining that the rate of contraction eased since June but was still sharp as rising prices caused a drop in client spending.
“The latest decrease was seen across all four sectors covered by the S&P Global PMI survey, namely manufacturing, construction, wholesale & retail and services. Consequently, businesses reduced their output levels further, with the downturn softening slightly from the previous month but remaining steep overall. In addition to weakening demand, survey respondents continued to highlight that raw material shortages had constrained their capacity. Reflecting this, backlogs of work rose slightly for the second month running”, said the report.
On the other hand, the report noted an easing in inflation pressure seen in the sector in July.
In this respect, the report’s survey showed that only 29 percent of the companies reported an increase in their input costs in July compared to June, when Egypt’s inflation hit a near four-year high.
Egypt’s headline monthly inflation declined to 13.2 percent in June, down from 13.5 percent in May, for the first time in seven months, while annual headline inflation accelerated to 14.7 percent in June, up from 5.3 percent in the correspondent month of 2021, according to the latest readings from the Central Agency for Public Mobilisation and Statistics (CAPMAS).
The report also highlighted that supply chain disruptions linked to the COVID-19 and the spillovers of the Russian-Ukrainian war together with the stronger performance of the US dollar against the Egyptian pound resulted in rising prices for raw materials, fuel and foodstuff in June.
Dealing with that, companies raised their selling prices at a much slower pace, according to the report.
“That said, the rate of charge inflation was still the second-quickest since July 2018,” the report pointed out.
For the seventh month in a row, purchasing activity in the non-oil private sector continued to fall, as weaker demand and higher prices constrained companies’ spending plans, according to the report.
Going forward, the surveyed companies’ expectations for the upcoming year dropped significantly in July, after rising to a five-month high in June, as only 13 the surveyed companies anticipated growth of output over the next year, according to the report.
“The demand picture still appears challenging, leading businesses to give a relatively downbeat outlook for the coming year. Output forecasts in July were down to one of the weakest recorded in the series history,” Owen explained.