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Kenya’s service sector registers marginal growth in October

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Activity in the country’s services sector increased at a marginal pace in October, according to business executives responding to a Service Sector Outlook Survey.

The revenue index by Stanbic Bank Kenya Purchasing Managers Index (PMI) – a key measure of the private sector conditions, posted 50.2 to signal only a fractional improvement in operating conditions in the period under review.

Last month’s index was down from a seven-month high of 51.7 the sector posted in September, when renewed growth was indicated due to the end of the national election period. September’s reading posted 51.7 during the month, up sharply from 44.2 in August and above the 50.0 no-change mark for the first time since March this year.

Labor market indicators suggested a continued but cautious employment growth and longer workweeks in October – a synonymous period for seasonal hiring.

“New orders, employment and purchasing growth recorded weaker expansions. Bar manufacturing output contracted slightly for the seventh time in eight months. However, the 12-month output outlook improved to 15-month high,” noted Mulalo Madula, an economist at Standard Bank.

The reading signaled a repeated and modest improvement in overall business conditions, even though rising standard of living occasioned by the high inflation rate, remained a key concern for the survey panelists.

“On the downside, inflationary pressures appear to be increasing. Input costs accelerated, underpinned by higher fuel prices, a weaker exchange rate, staff costs, and shortages of commodities such as timber and animal feed,” observed Madula.

Further warning that, if price pressures persist and firms continue to pass on a higher share of rising input cost burdens to output charges, demand may weaken in the short to medium term, slowing the overall rate of improvement in Kenya’s business environment.

The annual inflation rate in the country accelerated for the eighth straight month to 9.6 percent in October from 9.2 percent a month earlier and above market forecasts of 9.5 percent – marking the steepest inflation rate since May of 2017, and breaching the upper limit of the central bank’s target range of between 2.5 percent and 7.5 percent for the fifth month.

The outlook for 2022 and 2023 now remains extremely uncertain.

The last time the country witnessed this kind of inflation was in June 2017 when it hit 9.21 per cent, according to inflation data by the Kenya National Bureau of Statistics (KNBS).

In response to soaring inflation, the government has been left with a daunting choice to either increase spending to support its citizens while burying itself deeper in debt or implement austerity measures and potentially incite social unrest.

Another report by research firm, Geopoll, on the ‘global cost of living crisis’, last week warned Kenyans to prepare for the worst standard of living saying the situation could weaken in the coming months.

As bad as the cost of living crisis may be right now, most respondents who took part in the poll expect it to get worse before it gets better. Food prices in general and total household spending are expected to rise.

Skyrocketing food prices in Kenya where the average household spends more than 40 percent of its income on food, have pushed many families to the brink, according to the report.

Meat, eggs and fish are some of the food products whose prices have increased the most, according to the report – rising by 50 percent, followed by cooking gas or fuel and cooking or edible oil ascending at 61 percent and 81 percent respectively.

The prices of wheat and maize corn has also shot up by 73 percent according to the survey, with the ravaging drought in the country has also left the country more dependent on costly grain imports.

Tough times have seen President William Ruto defend his call for the public to pay taxes as the government moves to ramp up revenue collection in its race to meet a Sh6 trillion collection target by 2027.

The move has seen the Kenya Kwanza – government through the Kenya Revenue Authority (KRA) embark on tax reform measures that could see every Kenyan above 18 years brought into the tax bracket.

The prospect of change in government, however, may bring hope to some. That holds true to recent sentiments by Dr. Ruto who assured the public that tangible ‘fruits’ will be felt after 12 months in office. Ruto was sworn in office in September 2022.

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