DROP

Private sector performance drops to 5-months low in November

PMI fell to 51.3 from a record high of compared to 59.1 in October

In Summary
  • Output expansion slows to weakest in five months
  • Key to the slowdown were weaker increases in business activity and sales
A factory worker rolls bags of cement at the East African Portland factory in Athi River near Kenya's capital Nairobi August 18, 2011. Photo/REUTERS
A factory worker rolls bags of cement at the East African Portland factory in Athi River near Kenya's capital Nairobi August 18, 2011. Photo/REUTERS

The Kenyan private sector economy registered a sharp growth slowdown during November, as the Purchasing Managers Index (PMI) fell steeply from October's record high. 

According to the index released yesterday by  Stanbic Bank Kenya, last month's PMI fell to 51.3 in November from a record high of compared to 59.1 in October, to signal a much softer and only modest improvement in overall business conditions.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

The rate of growth was also the least marked in five months.

Key to the slowdown were weaker increases in business activity and sales, as firms commented on issues with money circulation and economic stress caused by a rise in local Covid-19 cases.

Reintroduced curfew measures meanwhile led to a drop in client demand at some businesses, while lockdowns in Europe curtailed growth in foreign new orders.

Subsequently, after a renewed rise during October, Kenyan companies kept job numbers stable in November, reflecting a drop in revenues and reduced pressure on capacity.

Most notably, the 12-month outlook slipped to its weakest in the series history, amid softer growth predictions and concerns about a resurgence of the coronavirus disease

Competition among vendors led to a further shortening of supplier lead times in the latest survey period.

The rate of improvement was the least marked since June, however, amid difficulties with sourcing some inputs.

Purchasing costs continued to rise in November, although the rate of inflation softened for the first time in six months, and to a moderate pace. Salaries meanwhile decreased slightly from that seen in October.

Despite a rise in overall costs, average prices charged by Kenyan firms declined, as some firms highlighted efforts to improve sales by giving discounts. The overall fall in charges was only marginal though.

Looking ahead, the outlook for business activity in 12 months' time fell to its lowest on record during November.

Roughly one-in-four companies predicted activity to rise in the year ahead, against a neutral outlook at most firms. Worries over a rise in COVID-19 cases and new curfew measures spurred weaker growth prospects, although many businesses still reported plans for expansion.

Kuria Kamau, fixed income and currency strategist at Stanbic Bank said that although containment measures that were re-instilled were less stringent than before,  the pace of the improvement in business activity slowed down partly due to a resurgence in Covid-19 cases.

The index has, however, shown optimism in future outlooks as more Covid-19 vaccines are discovered and approved globally. 

Last week, the Central Bank of Kenya's private sector market perception survey revealed improved expectations of economic activity in the next two months and improved optimism on economic prospects for the next twelve months.

Respondents attributed the improvement to the continued normalisation of economic conditions with the lifting of Covid-19 restrictions, strong agricultural production, and government focus on infrastructural projects.

Although they were positive about the prospects for a Covid-19 vaccine, uncertainties remain particularly with regard to the increase in infections.

The PMI is a weighted average of the following five indices: New Orders (30 per cent), Output (25 per cent), Employment (20 per cent), Suppliers’ Delivery Times (15 per cent) and Stocks of Purchases (10 per cent).

For the PMI calculation, the Suppliers’ Delivery Times Index is inverted so that it moves in a comparable direction to the other indices.