Egypt’s non-oil economic headwinds are showing further promise of dissipating as companies said their input costs were softening, and stabilisation of the Egyptian pound cooled import markets.

The country’s Purchasing Managers’ Index (PMI) report for May said the country saw the slowest downturn in business conditions in 15 months. 

The headline index was 47.8, its highest level since February 2022, still below the 50.0 threshold signalling overall growth, but an increase from April’s 47.3, the report said.

The country is making progress towards a stabler demand environment, which led to a slower, but still solid contraction in activity levels.

While higher prices continued to dent sales, output and purchasing, firms signalled that inflationary pressures were much softer than the highs seen at the turn of the year, according to the report by S&P Global Market Intelligence. 

However, ongoing challenges for non-oil companies meant that the activity outlook remained subdued and employment levels were cut again. 

Receipts of new orders at non-oil businesses declined to a lesser extent in May, with this index picking up to its highest for seven months.

Companies continued to report subdued demand largely attributed to inflation, but some respondents began to see a recovery in client orders.

New business intakes in the services economy grew for the second time in three months. Additionally, sales to foreign clients decreased at the softest rate in 2023.

Selling prices rose at a solid and quicker pace, but much weaker compared to those seen recently.

Rising input prices and weak demand meant that purchasing activity at non-oil businesses continued to decline, leading to a further contraction in firms’ input inventories.

Employment cuts were recorded in May, marking the sixth consecutive month of job losses.

Firms noted that low sales and difficulties paying staff due to a lack of liquidity were behind the reduction, which accelerated from April but was only marginal overall.

Business expectations towards the next 12 months picked up in May, following a survey-record low at the start of the second quarter. Confidence levels were however still among the lowest ever recorded, amid continued concerns about demand conditions, inflationary pressures and supply-side challenges.

Only 6% of companies were hopeful that output levels will expand over the coming year, which is still higher than a historic low in April.

David Owen, Senior Economist at S&P Global Market Intelligence, said: “The Egypt PMI remained in negative territory in May, but showed further promise that current economic headwinds were beginning to dissipate.

“Companies signalled that input cost pressures were again much softer than at the beginning of the year, as a period of stabilisation in the Egyptian pound versus the US dollar helped to cool import markets.”

(Writing by Imogen Lillywhite; editing by Daniel Luiz)