Private sector activity quickens to 14-month high in December

By Steve Umidha

Private sector activities picked up to a 14-month high in December last year as demand for commodities and services improved, the latest sector report showed last week, adding to signs that the government stimulus policies are gradually kicking in.

But analysts cautioned of a weakening business confidence seen at the end of the month under review, with many businesses cautious on whether there will be much improvement this year.

In fact, the level of sentiment was the weakest seen since the Stanbic Bank Kenya Purchasing Managers Index (PMI) Survey began in January 2014, with just 19 percent of respondents giving a positive outlook.

While there were hopes of expanding premises and offering new products and services in 2022, optimism fell as COVID-19 cases rose to a record level, according to the report.

“The Future Output Index fell to a survey-record low in December, indicating that business sentiment was at its lowest level for at least eight years. The majority of respondents instead gave a neutral outlook for 2022,” reads in part the survey findings.

The December data however, indicated a sharp increase in input costs across the private sector, though the rate of inflation eased slightly to a three-month low.

During the month under review, the PMI rose for the third straight month to 53.7 in December from 53.0 in the previous month – with the reading being the highest recorded in 14 months, pointing to a solid improvement in the health of the private sector economy

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

Overall sales volumes rose at the fastest pace since October 2020, driving further uplifts in purchasing, inventories and employment.

The pace of growth was the strongest seen since October 2020, as panelists commented on improving customer demand and better cash flow as economic conditions recovered further from pandemic measures. Subsequently, output levels rose sharply and at the fastest rate since the beginning of 2021.

“Both domestic and export demand expanded rapidly on account of fewer public health restrictions locally and around the world. Export firms particularly noted increased demand from Europe and parts of Africa,” noted Kuria Kamau, Fixed Income and Currency Strategist at Stanbic Bank.

It was also the period that coincided with the government easing lockdown restrictions during the third quarter of the year as firms saw a release of pent-up demand as clients largely returned to markets.

Kenyan companies rose sharply midway through the final quarter of the year, with the rate of growth accelerating for a second straight month to the quickest since May, with firms reporting higher sales on an increase in customer numbers that was often linked to the removal of curfew hours.

As a result, Kenyan firms saw a further strengthening of output and new business growth at the end of the year, according to the latest PMI data, which also noted an overall rise in the sector’s cost of doing business Kenyan firms during the month.

The study blamed this on the increase on higher purchasing prices, in a period that also saw Kenyan firms add to their workforces for an eighth consecutive month in December.

The rate of job creation eased slightly from November’s two-year high, and was broadly in line with the series average.

Respondents that hired new staff often commented on an increase in new business.