Kenyan businesses suffered a marked fall in demand at the start of the third quarter of the year, latest Stanbic bank Purchasing Managers Index (PMI) data shows
BY SILAS APOLLO
The PMI data, released by Stanbic Bank Kenya, shows that the demands fell for most businesses as customers continued to reduce their spending amidst steep inflation.
Political protests also accelerated the downturn, according to surveyed firms, leading to a sharp contraction in output that was the fastest since August last year.
Meanwhile, a deterioration in the exchange rate and reports of rising fuel prices and taxes culminated in another substantial rise in business costs in July, with the rate of input price inflation among the quickest since the survey began in 2014.
Output prices subsequently increased to a sharper degree. Business optimism waned slightly, while jobs growth eased.
“July’s PMI headline trajectory comes as no surprise given events during the past month. Political protests, an increase in pump prices by approximately Sh12.61 in July, the further tightening of financial conditions as well as a further depreciation of the shilling — all of which saw the private sector deteriorating for a sixth straight month.
“Notably, the survey results show that the July contraction in output was the deepest since August 2022,” said Christopher Legilisho, economist at Standard Bank.
And according to the PMI data, the latest reading indicated a greater slump in operating conditions over July, with the pace of deterioration accelerating to the fastest in almost a year.
At 45.5, the index was down from 47.8 in June, registering below the 50.0 neutral mark for the sixth month in a row.
The headline figure derived from the survey is the Purchasing Managers’ Index (PMI). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
“Inflation seems set to stay stickily high due to Kenyan businesses facing intractable input, output and wage price pressures. The survey noted input price inflation in July as being higher than in June, and also the third highest since data collection began in 2014,” said Legilisho.
Deteriorating operating conditions were driven by a sharp and accelerated fall in new business inflows, as Kenyan firms highlighted a drop-in client demand due to the cost of living crisis.
Alongside this, several firms noted that political demonstrations had adversely affected sales.
Four of the five monitored sectors recorded a decline in sales in July. Agriculture was the only category to post inside growth territory.
The data further shows that with overall sales falling rapidly, Kenyan businesses indicated a sharp drop in output over the course of July, which was the second-worst since 2017 when excluding lockdown affected periods.
“Firms often noted that weak orders resulted in cash flow issues that limited activity. Price pressures at Kenyan companies remained severe in July, amid reports of a sharp rise in input costs due to a decline in the shilling exchange rate,” the survey says.
Higher fuel prices and increased tax burdens were also cited, while some firms reportedly upped their workers’ salaries amid the cost-of-living crisis. Notably, the rise in overall input costs was one of the sharpest seen since data collection began in 2014, resulting in a robust and faster uplift in selling charges.
Heightened costs and weak demand contributed to a cooling of employment growth in July, with firms posting only a slight rise in workforce numbers. Concurrently, businesses cut their input purchases sharply, and ended a four-month run of inventory growth as stock levels were unchanged.
“Nevertheless, some positive indications spell economic resilience in the medium term. The agricultural sector rebounding has been supporting economic activity despite the construction, wholesale & retail and services sectors slowing,” said Legilisho.
“Export orders remain in expansionary territory, buoyed by the weaker shilling. However, new export order growth slowed considerably. Though employment in the private sector is still robust, momentum there too has cooled,” he added.
Lead times on inputs continued to shorten, but the rate of improvement slowed from June and was only mild.
Regarding future output, only 14% of surveyed Kenyan firms forecast growth over the next 12 months, leading to a slight weakening in the overall level of confidence.
