Africa-Press – Kenya. The high cost of living pushed up by the weak shilling saw the private sector report a stronger downturn in June. The shilling has dropped close to 15 per cent since January against the dollar, closing Wednesday at 140.69.
The latest Stanbic Bank Kenya Purchasing Managers’ Index (PMI) dropped below the 50.0 neutral mark for the fifth month running, dropping to 47.8 points compared to 49.4 in May. On a quarterly basis, the second quarter was the weakest since the third quarter of 2022.
“The main negative influences on the PMI in June came from new orders and output, which together account for 55 per cent of the weight of the headline index,” the report reads in part.
Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration. Output and new orders both declined at faster rates, while inflationary pressures remained elevated as the Kenyan shilling continued to depreciate.
According to Stanbic, the private sector output in Kenya fell for the fifth month running in June. Having eased in May, the rate of decline accelerated at the mid-way point of 2023 and was comparable in strength to the sharp contractions posted in April and February.
“Companies reported tough trading conditions influenced by high inflation in the country and a lack of client spending power. Sector data revealed the services and wholesale & retail sectors as key sources of weakness,” the report shows.
There was a reduction in the volume of new businesses placed with Kenyan private sector firms. New orders have fallen every month since February, and the rate of decline quickened in the latest period.
At five months, the current downturn in demand is the joint-longest in the survey history, albeit of a lesser severity than those seen in 2017, 2020 and 2022.
Firms widely reported a lack of purchasing power in the economy due to high inflation and cash shortages. With new work continuing to fall in June and prices remaining high, private sector firms adjusted their purchasing operations.
The volume of inputs ordered fell for the fourth time in five months, at a moderate pace. Reduced purchasing was linked to low sales, sufficient inventory levels and high prices.
The currency weakness did, however, support exports, which grew further in June. New export orders have increased for four successive months, and the latest increase was the fastest since December 2021.
The seasonally adjusted Employment Index remained above the no-change mark of 50.0 in June, signaling a fourth successive month of rising Kenyan private sector employment. Recruitment was linked to business expansions and efforts to improve service levels.
The rate of job creation eased from May’s 18-month high and was broadly in line with the long-run survey average. The agriculture sector posted the fastest rise in staffing, followed by manufacturing.
Despite this, capacity pressures remained evident at Kenyan firms in June despite the sustained fall in new work, illustrated by an increase in backlogs of work for the fourth month running.
“That said, the rate of accumulation eased further and was only fractional. The latest rise in outstanding business was driven by the wholesale & retail, construction and services sector,” the report says.
Suppliers’ delivery times also improved as vendors became more competitive to retain business as demand for inputs fell. Private sector companies in Kenya were more optimistic about the forthcoming 12 months in June.
The sentiment was linked to investment in new branches, marketing, entry to new export markets and new services. The overall strength of confidence remained relatively weak, however.
The Future Output Index recovered further from April’s record low but was still well below its long-run trend level of 73.4. By sector, confidence was strongest in agriculture and services, and weakest in construction.
Mulalo Madula, an economist at Standard Bank says that in the medium term, growth could be robust, but most of Finance Act 2023’s proposals could stifle growth in private investment and consumption.
“This is likely to weigh on the economy. Notably, firms have an improved outlook for the next 12 months, albeit remaining below average,” Madula said.
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