GROWTH

Private sector performance improves fractionally in December

Output and new order growth remain moderate

In Summary
  • Higher employment supported the upturn in output, but business confidence fell to a new record low.
  • Cost inflation quickens amid input shortages
Delmonte Kenya Company sorting out fruits for export at the company's factory in Murang'a.
Delmonte Kenya Company sorting out fruits for export at the company's factory in Murang'a.
Image: Alice Waithera

The headline private sector performance index rose fractionally to 51.4  in December from 51.3 in November, indicating another modest improvement in business conditions in Kenya amid the Covid-19 pandemic. 

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

According to the monthly Purchasing Managers’ Index (PMI) by Stanbic Bank,  the soft growth was a result of improved cash flow, looser Covid-19 restrictions and higher customer orders.

Output rose at the slowest rate in six months, although new order growth quickened slightly. 

Kuria Kamau, fixed income and currency strategist at Stanbic Bank said the modest month-on-month improvement in the Stanbic PMI indicates that the pace of the post-pandemic recovery is slowing down.

According to him, rising input costs, partly caused by disruptions in supply chains as well as some input shortages resulted in a slowdown in the growth in output.

''This slowdown was inevitable following the significant improvements in economic activity witnessed in October after the relaxation of public health restrictions,'' Kamau said. 

New order growth quickened from November but remained far softer than October's record high. Stronger sales led to a renewed increase in backlogs of work at the end of the year, which supported a third successive monthly rise in employment. The rate of job creation was marginal though.

Higher employment supported the upturn in output, but business confidence fell to a new record low.

According to the survey,  business confidence slipped below November's previous record low at the end of the year, despite positive forecasts from 22 percent of respondents.

Most of the remaining firms (78 per cent) gave a neutral outlook for activity.

This is attributed to continued worries surrounding the impact of the COVID-19 pandemic on future activity.

Cost pressures accelerated as firms faced difficulties acquiring some inputs amid sustained disruption from the coronavirus pandemic. Nevertheless, prices charged fell for the second month running.

Purchasing activity rose further in December, although stock levels increased at the slowest rate for six months.

This was partly due to issues with global supply chains as a result of Covid-19 and input shortages.

Notably, lead times improved at the weakest rate in seven months. These supply-side issues also led to an accelerated pace of cost inflation, as purchase prices rose at the quickest rate since March.

However, the uptick was eased slightly by a further decline in staff costs. Despite some firms passing higher costs on to customers, average prices charged fell for the second month running in December.

This was related to discount offerings by some firms amid efforts to attract new clients.

Export sales growth picked up in the final month of 2020, after slipping to a five-month low during November. Moreover, the rise in export orders was sharp overall and attributed to relaxed lockdown rules in countries such as Ghana and France.

After falling in November, the seasonally adjusted Purchase Prices Index made up lost ground in December and indicated the sharpest rate of price inflation for nine months. Overall, purchasing costs rose solidly in the latest survey.

Raw material shortages, logistical issues and currency weakness were all mentioned by companies that saw higher costs.

Efforts to lower-wage bills led to a further drop in overall staff costs in December. The rate of decline quickened from November but remained marginal and far softer than seen earlier in the year during the worst of the Covid-19 outbreak.

Output charges continued to fall at a marginal pace in the latest survey period, following a renewed decrease in November.

The pace of decline accelerated slightly, with discounts often related to efforts to attract more clients and support customers with weak spending power. However, this was partly offset by the passthrough of higher costs to clients.