Steep inflationary pressures and supply constraints continue to hurt Egypt's non-oil private sector businesses, which marked sharp contractions in activity and new orders in March, according to a new business survey.

The S&P Global Egypt Purchasing Managers’ Index (PMI), fell slightly from 46.9 in February to 46.7 in March, posting below the 50.0 neutral threshold to indicate a deterioration in the sector's health.

While the drop in client demand affected new orders, there was a slightly greater rate of decline compared to the previous survey period, although this was slightly offset by a softer reduction in export sales, according to the report, which also noted that the outlook for future output remained among the weakest on record.

"At 46.7, the headline PMI signalled a further solid deterioration in the performance of non-oil companies, driven by steep falls in activity and new business volumes. Inventories and employment levels also decreased, with purchasing once again impacted by customs restrictions," David Owen, Senior Economist at S&P Global Market Intelligence, said.

"The sharp rise in inflation to 31.9% in February - the highest in five-and-a-half years - illustrates the daunting cost-of-living crisis affecting the country at present, in large part due to a marked drop in the value of the Egyptian pound over recent months," Owen added.

The rate of contraction of output eased slightly and was the softest for five months, but output levels in manufacturing, construction and wholesale and retail were still marred by difficulties with accessing key inputs due to import controls and currency restrictions.

However, increase in sales resulted in a positive movement in the services economy for the first time since August 2021.

"The pace of output charge inflation slowed to a five-month low, as companies pulled back on price hikes in a bid to stimulate demand. In addition to a slightly stabler currency market, the data provides some hope that the peak of inflation could be near," Owen said.

Amid this, companies reduced their headcounts for the fourth successive month, often leaving positions vacant due to a lack of new work.

(Reporting by Seban Scaria; editing by Daniel Luiz)