NAIROBI, Kenya July 6-Kenya’s private sector continued to decline in June as PMI survey data signaled a decline in business output and new customer orders amid rising price pressures.
The Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) remained below the 50.0 no-change mark for the third successive month in June, falling to 46.8 from 48.2 in May.
Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
“Economic activity in Kenya contracted for the third consecutive month as inflationary pressures continued to weigh on demand by customers and output. Output, and consequently the headline PMI reading, fell to the lowest level since April 2021 when stringent public health restrictions were last imposed. Domestic demand dropped at an accelerated pace with the fastest declines being recorded in manufacturing, construction and trade,” said Kuria Kamau, Fixed Income and Currency Strategist at Stanbic Bank.
According to the survey, input costs increased at a severe rate, driven by higher fuel prices, supply shortages and a strengthening US dollar, leading to a record uptick in firms’ selling charges.
With demand falling, companies reported slight reductions in their employment and purchases.
“The lower domestic demand along with the increase in input prices, lower cash flows and the upcoming elections forced firms to scale back on output sharply. While the increase in input prices slowed for the second consecutive month, it remains at near-record rates with firms pointing to higher fuel prices and supply shortages as the main drivers of the high inflation,” said Kamau.
Firms surveyed commented that rising price pressures weighed on client demand, while weaker cash flow and the upcoming elections were also noted as contributing factors.
The downturn in sales was largely concentrated on the manufacturing, construction and wholesale & retail sectors in June. By contrast, services firms posted a marginal rise in new business.
Meanwhile, inflationary pressures remained marked at Kenyan companies in June, often reflecting a surge in fuel prices due to the Russia-Ukraine war.
A lack of availability of other inputs, a stronger US dollar, higher taxation and increased wages also weighed on business costs, which rose at one of the fastest rates in the series history.
Finally, expectations for future activity improved for the first time in four months during June, after reaching a record low in May.
That said, optimism remained weaker than in any month prior to April amid concerns about the impact of inflation in the economy.
