Non-oil businesses’ outlook remains subdued despite June’s 22-month high in PMI

Egypt's non-oil private sector economy reached a 22-month high in June, as the headline seasonally adjusted Purchasing Managers' Index (PMI) recorded 49.1, its highest level since August 2021. However, the PMI remained below the growth threshold of 50.0, indicating ongoing challenges for the non-oil private sector, according to S&P's monthly report.

While there were signs of positive growth, with slower declines in both output and new orders, suggesting a potential stabilization, the overall business conditions continued to deteriorate. The report also noted a slight easing of inflationary pressures.

Joe Hayes, Principal Economist at S&P Global Market Intelligence, explained, “At 49.1, the index reached its highest level for 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”.

Despite the modest decline since May, inflationary pressures remained below the earlier peaks witnessed in January. Hayes added, “After the steep price increases seen at the start of the year, fewer companies are reporting such high-cost pressures. The overall rate of input price inflation cooled to a 16-month low during June, which led output charges to rise at a slightly weaker rate”.

Employment levels continued to decrease for the seventh consecutive month in June, reflecting subdued confidence in the year-long outlook.

The surveyed Egyptian non-oil businesses disclosed a subdued outlook, with the level of optimism among businesses reaching its second-lowest recorded point, according to the PMI report. S&P revealed that growth expectations were only "mildly positive."

Overall, input cost inflation reached a 16-month low, driven by a slower increase in purchase costs. Output prices followed suit, rising at a slower pace compared to May.

Non-oil private businesses scaled back their purchasing activity and reduced their input stocks. However, the rates of decline in both cases were less pronounced compared to May. The continued contraction in output and new business allowed businesses to clear pending orders for the fifth consecutive month.

"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," concluded Hayes.