MANAGERS INDEX

Rising living costs stall Kenyan economy in April – survey

Purchasing Managers’ Index survey signals a decrease in customer demand.

In Summary

•A solid fall in output was also registered as firms experienced supply shortfalls for a number of items and a near-record rise in input prices.

•Subsequently, selling charges were raised at the quickest rate in the survey's history, while business confidence dropped to a fresh record low.

An aerial view of the industrial area in Nairobi/FILE
An aerial view of the industrial area in Nairobi/FILE

Kenyan companies saw a renewed deterioration in business conditions in April, with the Purchasing Managers’ Index (PMI) survey data signaling a decrease in customer demand.

This is in response to rising consumer prices and living costs.

A solid fall in output was also registered as firms experienced supply shortfalls for a number of items and a near-record rise in input prices.

Subsequently, selling charges were raised at the quickest rate in the survey's history, while business confidence dropped to a fresh record low.

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

For the first time in three months, the headline PMI dropped below the 50.0 no-change mark in April, falling to 49.5 from 50.5 in March.

The decline in operating conditions was underlined by a renewed fall in new order volumes in April.

The decrease was often related to clients reducing their spending due to marked increases in selling prices, fuel costs and other living expenses.

Price gauges remained extremely high during April, driven by increased reports of supply shortages due to the war in Ukraine.

Input costs rose to the greatest extent in over eight years. 

Kuria Kamau, Fixed Income and Currency Strategist at Stanbic Bank commented: "Economic activity in Kenya contracted in April due to rising inflation and supply shortfalls that negatively affected consumer demand and firms’ output."

Domestic demand fell, driven by reduced client spending following significant increases in food and fuel prices, Kamau notes.

"Output prices rose at the fastest rate on record as firms passed on the highest input inflation recorded over the past eight years. In response to the lower demand, firms reduced their output at the fastest rate since the last round of lockdowns in April 2021," Kamau added.

The inflationary pressures have further dimmed the 12-month outlook by firms to a new all-time low in April.

 With sales falling, Kenyan businesses reduced their activity for the third time in the past four months in April.

The reduction was solid and faster than in March, with declines seen in the construction, agriculture and services sectors.

At the same time, however, firms looked to build buffer stocks of items at risk of being in short supply.

Input purchases rose for the third month running, supporting a solid increase in overall inventories.

Employment numbers were also up during April, albeit to a lesser extent than in the previous month.

The improvement in staff capacity, alongside lower demand, helped lead to a stabilisation of backlogs of work.

Meanwhile, efforts to secure clients led vendors to reduce lead times further at the start of the second quarter.

However, the rate of improvement slid to a marginal pace as delivery schedules were often disrupted by fuel and raw material shortages.

Finally, business confidence regarding future activity dropped to a record low for the second successive month in April.

Concerns over rapid price inflation and reduced client spend meant that only nine per cent of businesses gave a positive outlook.

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