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Kenyan firms record weaker start to the year

While domestic demand, production and productive capacity have fallen, respondents noted that foreign demand had improved/FILE

NAIROBI, Kenya, Feb 1 – Business sentiment in Kenya fell in January, pointing to a relatively soft start to the year. The Standard Chartered-MNI Business Sentiment Indicator (BSI) fell 4.5 percent month-on-month to 59.6, leaving it down 6.8 percent year-on-year.

Four of the five components of the headline indicator dropped as companies reported slower activity.

Companies were concerned that price pressures have picked up – both input prices and those received for their products have increased – and they expect them to continue to rise in the months ahead.

While domestic demand, production and productive capacity have fallen, respondents noted that foreign demand had improved.

“Companies’ experience seems to confirm that some of their ‘future’ concerns in December are being realised,” said Razia Khan, Standard Chartered Chief Economist for Africa.

Of the five components of the headline indicator, four – new orders, production, employment and supplier delivery times which together account for 85% of the headline indicator – fell. Only order backlogs increased.

Companies reported slower production and demand in January: production fell by 9.9 percent m/m while productive capacity dropped 3.4 percent. Although domestic demand, as indicated by the new orders indicator, fell 4.4 percent to 67.2, companies noted that foreign demand had improved significantly, and the indicator moved back above 50 into positive territory.

Companies were also concerned about the inflation outlook. Both input prices and prices received moved higher in January. Input prices rose 13.0 percent to 67.8, while prices received also rose 8.1% to 59.8. The Kenyan businesses surveyed still expect prices to rise in the coming months.

At its Monetary Policy Committee meeting on 31 January, the Central Bank of Kenya (CBK) addressed risks to the inflation outlook, particularly given higher food prices.

Although the CBK does not expect prices to breach its 7.5% target, the sharp rise in the two price indicators included in our BSI highlights the risks to this.

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