TRADE

Private sector performance hit a 14-month high in December

The monthly PMI rose to 53.7 per cent compared to 53 in November

In Summary
  • The pace of growth was the strongest seen since October 2020
  • The level of sentiment was the weakest seen since the survey began in January 2014
Production at the East African Breweries Limited plant in Nairobi/FILE
Production at the East African Breweries Limited plant in Nairobi/FILE

Private sector activities in Kenya rose to 14 months high in December on high sales volumes. 

The latest Purchasing Managers Index (PMI) shows it rose for the third straight month to 53.7 in December from 53 in November.

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

''The reading was the highest recorded in 14 months and pointed to a solid improvement in the health of the private sector economy,'' the survey conducted by IHS Martik on behalf of Stanbic Bank said.

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

However, business optimism dropped to the lowest level in the eight-year series history amid record-high Covid-19 cases.

Driving the upturn was a further strong increase in new work intakes at Kenyan firms.

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.

To manage higher workloads, companies also raised their staff levels, though the pace of job creation was only modest and softer than November's two-year high.

Nevertheless, this allowed firms to lower their backlogs of work for the second month in a row. More negatively, business confidence for the upcoming year dropped in December.

In fact, the level of sentiment was the weakest seen since the survey began in January 2014, with just 19 per cent 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.

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

Higher prices for raw materials were often noted due to ongoing supply issues and stronger demand.

Meanwhile, purchasing activity increased at the joint-fastest pace seen in 2021, as firms reported efforts to build inventories in the face of strong new order inflows.

Output charges were also raised at the end of the year, which businesses stated was largely due to higher demand and cost burdens.

Notably, though, the rate of inflation softened for the first time in four months and was the least marked since September.

According to Kuria Kamau, a fixed income and currency strategist at Stanbic Bank, 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.

''Both domestic and export demand expanded rapidly on account of fewer public health restrictions locally and around the world,'' Kuria said.

He added that to meet the rising demand, firms increased their level of output at the fastest rate since the start of 2021 which resulted in a reduction in work backlogs.

''Despite this, the 12-month outlook as reported by firms fell to the lowest level on record with most firms expecting business conditions to remain largely the same in 2022,''he said.