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Post-Pandemic Recovery in the Private Sector Begins to Slow Down – Survey

NAIROBI, Kenya, Jan 6 –The month of December 2020 saw a modest improvement in business conditions in the Kenyan private sector, following a sharp deceleration of growth in November.

This is according to the Purchasing Managers’ Index survey conducted by Stanbic Bank which indicates a fractional growth in the headline figure from 51.3 in November to 51.4 in December.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

According to the survey, output rose at the slowest rate in six months, although new order growth quickened slightly.

Higher employment supported the upturn in output, but business confidence fell to a new record low.

Commenting on the December survey findings, Kuria Kamau, Fixed Income and Currency Strategist at the bank said the modest month-to-month improvement indicates that the pace of the post-pandemic recovery is slowing down.

“Rising input costs, partly caused by disruptions in supply chains as well as some input shortages, have also resulted in a slowdown in the growth in output. This slowdown was inevitable following the significant improvements in economic activity witnessed in October after the relaxation of public health restrictions,” he said.

“Furthermore, a resurgence in COVID-19 cases, as well as the re-introduction of lockdowns in some international markets, has lowered expectations for the post-pandemic recovery in 2021.”

During the period, cost pressures accelerated as firms faced difficulties acquiring some inputs amid sustained disruption from the coronavirus disease 2019 (COVID-19) pandemic.

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Nevertheless, prices charged fell for the second month running.

Output rose at a slightly weaker pace in December and the slowest seen in the current six-month sequence of growth.

According to the survey, firms found that improved cash flow, looser restrictions, and higher customer orders supported the expansion.

New order growth quickened from November but remained far softer than October’s record high.

Stronger sales led to a renewed increase in backlogs of work at the end of the year, which supported a third successive monthly rise in employment. However, the survey finds that the rate of job creation was marginal.

Purchasing activity rose further in December, although stock levels increased at the slowest rate for six months. According to the findings, this was partly due to issues with global supply chains as a result of COVID-19 and input shortages.

Notably, lead times improved at the weakest rate in seven months. These supply-side issues also led to an accelerated pace of cost inflation, as purchase prices rose at the quickest rate since March. However, the uptick was eased slightly by a further decline in staff costs.

Despite some firms passing higher costs on to customers, average prices charged fell for the second month running in December. This was related to discount offerings by some firms amid efforts to attract new clients.

Business confidence slipped below November’s previous record low at the end of the year. Despite positive forecasts from 22 percent of respondents, there were continued worries surrounding the impact of the COVID-19 pandemic on future activity.

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