"Business activity levels continued to fall in the latest survey period, reflecting sustained efforts by companies to reduce output in line with weaker sales volumes," S&P Global said.
The S&P Global Egypt Purchasing Managers' Index (PMI) strengthened to 47.8 in May from 47.3 in April, but remained well below the 50.0 threshold that marks growth in activity.
May's rate of contraction was the slowest since February 2022.
"However, while solid overall, the rate of decline was the softest registered in almost a year-and-a-half, helped by near stabilizations in the manufacturing and services sectors," the report added.
The PMI's sub-index for overall input prices increased to 59.0 from April's 58.7, and that for purchase prices rose to 60.1 from 59.9.
Annual urban consumer inflation slowed to 30.6% in April from 32.7% in March, the state statistics organization reported last month, while core inflation eased to 38.6% from 39.5%.
"The toll of 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," S&P Global said.
The new orders sub-index improved to 46.4 from 45.2 in April, while that for output rose to 46.3 from 45.4.
"While firms continued to report subdued demand that was largely attributed to inflation, some respondents began to see a recovery in client orders. Notably, new business intakes in the services economy grew for the second time in three months," S&P Global said.
The sub-index for future output expectations strengthened to 53.2 from an all-time low of 51.4 in April.