DECLINED BUSINESS

Stiffled demand choking private sector activity- report

Private sector activity dipped for the fourth consecutive month to 34.8, signaling a severe decline in overall business conditions

In Summary

•Sales to foreign clients reduced significantly, particularly with regard to European countries where lockdown measures were widespread

•Local firms also experienced a hard time obtaining inputs largely driven by weaker supply of items and constraints on vendors amid curfew policies in Nairobi

Stanbic Bank regional economist Jibran Qureishi
Stanbic Bank regional economist Jibran Qureishi
Image: ENOS TECHE

Private sector activity hit its second-lowest point last month driven by falling demand, input shortages and lockdown restrictions.

The latest Stanbic Bank-Purchasing Managers' Index survey indicates the country’s private sector activity dipped for the fourth consecutive month to 34.8, signaling a severe decline in overall business conditions.

“Several key sub-indices of the survey, such as output, new orders, exports and employment, all reached record lows,” the report stated.

 

PMI hit rock bottom in October 2017 recorded at 34.4 since the survey began in January 2014 due to the repeat presidential election.

In April, sales to foreign clients reduced significantly, particularly with regard to European countries where lockdown measures were widespread.

Local firms also experienced a hard time obtaining inputs largely driven by a weaker supply of items and constraints on vendors amid curfew policies in Nairobi. This led to constrained stock levels.

Firms noted that some inputs were unavailable due to global supply constraints, while others highlighted forecasts of weak demand due to the pandemic

Due to uncertainty of the duration of the pandemic companies downsized at the fastest pace in the survey history, with wages also reduced amid efforts to lower total operational costs.

“Despite falling output and employment, backlogs eased for the second month running as inflows of new work decreased,” the report stated.

On the other hand, weaker input demand resulted in a slower increase in raw materials. The report shows this was however offset by shortages of goods such as food items and medicine.

 

The lower cost of raw materials inadvertently encouraged firms to reduce wholesale prices amid hopes that this would improve customer spending.

Stanbic Bank regional economist for East Africa Jibran Qureishi said economic impact of the coronavirus would be the hardest felt in the second quarter of the year.

“At least with anecdotal evidence available so far, the epicentre of the Covid-19 impact on economic activity will be in the second quarter of this year,” he said.

Jibran added that most firms noted that the weakness in private sector activity was emanating from subdued domestic and external demand conditions, in addition to the curfew restrictions in place.

“The longer the impact of this shock, the more acute the impact on economic output will be,” he said.

The study shows Kenyan firms were still positive that the economy would grow over the coming year.

“Panelists widely cited that they would open new branches and increase spending on products, services and marketing once lockdown measures were lifted,” the report stated.