•The latest survey notes business activity was held back by a sharp fall in new order volumes.
•Lower client spending drove a marked decline in sales, in part related to strong price pressures and a recent surge in Covid-19 cases from the Omicron variant.
January private sector activity in Kenya was at the lowest level in nine months, as demand slowed after picking during the festive season.
The latest Purchasing Managers’ Index (PMI) shows it fell to 47.6 in January from 53.7 in December which was a 14-month high.
Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
"Economic activity started 2022 on a subdued. While export demand grew marginally, domestic demand fell significantly as client spending was negatively affected by rising inflation and a resurgence in Covid-19 due to the Omicron variant,” Kuria Kamau, fixed income and currency strategist at Stanbic Bank said.
The Stanbic Bank Kenya PMI is compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies.
The latest survey notes business activity was held back by a sharp fall in new order volumes.
Lower client spending drove a marked decline in sales, in part related to strong price pressures and a recent surge in Covid-19 cases from the Omicron variant.
Employment growth slowed and input purchasing fell as a result, while business confidence improved only slightly from December's record high.
The index signalled a solid decline in operating conditions, albeit one that was slower than those seen in April 2021 and during the second quarter of 2020.
After registering the strongest upturn for 14 months in December, new business inflows declined sharply at the beginning of the year.
"This often reflected a drop in client spending and travel linked in part to the recent wave of the Covid-19 pandemic and increased price pressures,” the survey released yesterday states.
Export sales continued to rise, albeit at a far weaker pace.
Output levels were consequently scaled back at Kenyan firms, marking the first decline in private sector activity since last April.
Firms also indicated a renewed decrease in purchasing activity, which led to a reduction in inventory levels.
"As a result of the lower demand, firms were forced to reduce their output and purchases of raw materials for the first time since April 2021. Hiring continued but at the slowest pace in six months,” Kamau said.
Additionally, inflationary pressures resurfaced with input prices rising on account of higher tax burdens and raw material prices.
"Output prices, meanwhile, rose at a slower pace as firms accepted lower margins to avoid a significant reduction in sales volumes. Finally, there was a slight improvement in the 12-month outlook as reported by firms, but it remains near its all-time lows, " he added.
Nevertheless, employment numbers rose for the ninth consecutive month in January, helping firms to lower their backlogs of work again.
This reflects the Monetary Policy Committee – Hotels Survey (January 2022) by the Central Bank of Kenya released this week, which indicates overall employment in the sector has continued to recover, rising to 85 percent in December 2021 up from 81 percent in November 2021.
This was a 21-month high, buoyed by the festive season and lifting of the curfew.
According to the manager’s sentiments, Kenyan companies however faced a faster rise in total input prices at the start of the year, driven by sustained increases in the price of raw materials and fuel.
"The overall uptick in costs was the strongest seen in six months and above the series long-run trend. In contrast, output charges rose at a slower and modest rate, as firms noted that pressure from higher cost burdens often competed with efforts to restore client sales,”the index notes.
The pandemic remains a concern for companies regarding future activity, as pandemic-led uncertainty continued to weigh on expansion plans.