Private sector activity falls to 9-month low

The country’s private sector activity fell to a nine-month low in March, as companies registered a slower pace of output growth and sales and rising fuel prices led to increased product costs, according to the latest PMI survey data.

The Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) fell to 50.6 from 50.9 in February. The fall is the second month running.

Readings above 50 signal an improvement in business conditions on the previous month, while readings below 50 show a deterioration.

“Businesses highlighted that cash flow problems linked to the COVID-19 pandemic meant that households often limited spending to essential items,” Stanbic said of the survey released Wednesday.

The latest reading pointed to just a marginal improvement in the health of the private sector, and the weakest seen since the recovery in economic conditions from the initial impact of the coronavirus disease 2019 (COVID-19) pandemic began last July.

“The pace of output growth among Kenyan companies remained subdued in March, and softened to the weakest in the current nine month sequence of expansion. Where a rise was recorded, firms linked this to higher customer orders,” the panelists noted.

The survey further notes that the Kenyan businesses raised their workforce numbers again during March, with the rate of hiring accelerating slightly from the previous month.

However, that remained modest and slower than the series trend, according to the latest findings which also show that rising workloads and efforts to reduce backlogs often underpinned job creation during the month under review.

Latest PMI reading however, overlaps the World Bank recent predictions which projected in January that Kenya’s economy would expand by 6.9 per cent, the fastest growth rate in Africa, and a more ambitious prediction than the government’s estimate of 6.4 per cent economic growth in 2021.

Kenya’s economy was hard hit by the global pandemic for large parts of 2020, affecting incomes and jobs – with the global lender estimating that Kenya’s GDP contracted by 1 per cent in 2020.

For most part of 2020, the economy was exposed through the dampening effects on domestic activity of the containment measures and behavioral responses, and through trade and travel disruption, affecting key foreign currency earners such as tourism and cut flowers.

The month of March however saw Kenyan vendors make quicker deliveries, as latest data signaling a solid reduction in overall lead times.

“The rate of improvement strengthened to a five-month high, but remained below the series average. High levels of competition among suppliers were often linked to the improvement, as well as a good local supply of inputs,” said the panelists.

Meanwhile, input prices across the country rose sharply during the month, with the pace of inflation accelerating from the previous month. It attributed it to higher purchase prices, which owing to the rise in fuel prices and a recent increase in VAT.

Petrol prices hit a nine-year high on rising crude costs in the global market, piling inflationary pressure on the country’s economy.

The energy regulator Energy and Petroleum Regulatory Authority (Epra) two weeks ago came out to defend itself following a public tumult resulting from the latest shocking increase in fuel prices.

The hike saw the price of petrol shoot above the Sh120 mark per litre in Nairobi, the highest in almost a decade at a time when Kenyans are grappling with the effects of the Covid-19 pandemic amid a third wave.