Egypt’s non-oil private sector contracted at a slower rate in October, in a sign of a potential recovery after a long period in the red territory, according to S&P Global’s latest Purchasing Managers Index report (pdf). The country’s headline figure improved 0.4 points to 49.2 from the month before.

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Despite the improvement, the sector is still in red, having stayed below the 50.0 threshold that separates growth from contraction for the last eight months. The sector has only pushed up into the green twice since November 2020 and has a series average of just 48.2.

The decline in output volumes hit its slowest pace in eight months, which was driven by improvements in the manufacturing sector outweighing continuing downturns in the services, retail, and construction sectors.

New orders also saw mild improvement under improved market conditions, but again it was manufacturing driving the good news, being the only sector to register an increase in order volumes.

“Egypt PMI stayed above its long-term trend in October, pointing to a y-o-y GDP growth rate of about 4.6%. At the same time, overall business activity moderated at its slowest pace in eight months, while demand indicators are picking up, hinting that momentum in domestic markets has improved slightly at the start of the fourth quarter,” S&P Global Senior Economist David Owen wrote.

BEHIND THE NUMBERS- While Egypt’s whole economy PMI hit a three-month high in October, new export orders hit their highest level since January, Capital Economics’ James Swanston wrote in a research note seen by EnterpriseAM. “This might reflect the signing of the Israel-Hamas ceasefire which, while still fragile, provides an upside risk to shipping through the Red Sea and Suez Canal, bolstering Egypt’s exports and further utilizing its external advantage of a weaker EGP,” he added.

But ratcheting up the pressure on businesses were input costs rising at their fastest rate in five months, driven in no small part by the quickest jump in wages since October 2020. Cost pressures were also fueled by higher supplier prices and increased fuel costs. “Rising cost pressures could slow things down if companies struggle to absorb these costs in the months ahead,” Owen cautioned.

Despite heightened cost pressures, firms raised their selling prices at a softer pace from that observed month earlier, in an attempt to absorb much of the cost increase to boost sales. “The output price component declined to a four-month low, adding to our view that disinflation will resume and pave the way for two more interest rate cuts by the Central Bank of Egypt this year,” Swanston said.

Employment remained broadly stable in October, with businesses reporting a slight increase in hiring, marking the third jump in job creation within four months.

Looking ahead, the business community is more upbeat — or at least less pessimistic — than they have been recently, expecting an uptick in demand and overall economic conditions.

“Overall, the report conveys some optimism among businesses and relative improvement in expectations about business activity in October … While we see growth in manufacturing is great news, our main concern is that some inflationary pressures like strong wage revisions could be here to stay, and could feed later into price levels,” Thndr Securities’ Esraa Ahmed told us.

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