In February, Egypt's PMI recorded 47.1, slightly up from 46 posted a month earlier, with the non-oil private sector witnessing an activity contraction.
In its report on Egypt’s PMI, S&P expounded that this reading mirrors a softer, but still solid, deterioration in business conditions in the non-oil private sector in the country.
The report attributed this development to the uptick in both output and new orders for the second consecutive month; yet, it noted that August readings still indicative of marked drops in business activity and sales, as firms continued to see a worsening of client demand amid rapid inflation.
The drop in new business was widespread, particularly in manufacturing, services, construction and wholesale and retail that witnessed an activity decline in August, according to the report.
In addition, the report noted that lack of raw material supply seen in August had constrained total output, exacerbated by recent import regulations and the spillovers of the Russian-Ukrainian conflict.
"August saw the key PMI metrics move in the right direction with the headline index up for the second month running, while price gauges continued to fall from their recent peaks. The latest rise in input costs was much softer than in July, supporting a slower uplift in output prices that should ease the burden on consumers over the coming months,” said economist at S&P Global Market Intelligence David Owen.
"Subsequently, new orders decreased at the softest rate since April, leading to a slower, but still sharp fall in output levels. Furthermore, employment rose at the quickest rate since October 2019, as some firms looked to increase their capacity and support backlog depletion,” Owen said.
According to the report, Egypt’s non-oil economy registered a softer decline in operating conditions in August, as easing inflationary pressures helped to alleviate spending constraints on clients and led to slower decreases in output and new orders.
“That said, the outlook for future activity remained subdued,” read the report.
Touching upon the impacts of the global economic crisis on the non-oil private sector, the report expounded that the sector’s businesses saw a fresh decrease in new export orders in August. Following the first upturn in foreign demand for six months recorded in July.
“Headwinds on the global economy meant that businesses showed little optimism towards future activity, as expectations slipped to the second-lowest on record. Monetary policy uncertainty, a weakening exchange rate, and the continued war in Ukraine mean there are still high levels of risk for the economy over the rest of 2022,” Own explained.
Meanwhile, the report said that the quantity of inputs purchased by non-oil companies dropped for the eighth successive month, as firms continued to retract their spending in light of weaker sales and high input costs.
“Stocks of purchases decreased but only mildly, helped by a reduced drawdown of holdings as new order volumes fell,” according to the report.
On the other hand, the report said that employment in the sector increased at the strongest rate since October 2019, as firms began to offset job cuts made in the first half of 2022.
“With staffing capacity up, businesses were able to stabilise their work in-hand following two successive increases in backlogs,” the report explained.
On the price front, August survey data indicates a broad softening of input cost pressures in the local market, with inflation easing sharply for the second month running, according to the report.
“Higher purchase prices were again widely reported, linked to rising fuel and raw material prices, in part due to a further deterioration in the Egyptian pound against the US dollar. More positively, wage costs decreased for the first time in five months,” said the report.
Going forward, the report’s survey’s results signalled that non-oil firms remained relatively downbeat about future output levels in August, with just 9 percent of respondents predicting growth over 2023.
“Despite hopes of a recovery in demand, sentiment was dampened by weak market conditions, high inflation and sustained supply problems. The overall degree of positively was the second-lowest on record, higher than only March's nadir,” the report highlighted.