•Only 10% of firms surveyed gave a positive forecast for output over the next 12 months.
•There are fears that the inflation-driven downturn in the economy will continue.
Firms operating in Kenya are still pessimistic over their short to medium prospects, despite making it through an election-related disruption last month, the latest Purchasing Managers Index (PMI) survey indicates,
According to the monthly survey, Kenya's private sector activity contracted for the fifth consecutive month in August with the headline PMI reading below the 50.0 neutral mark.
It dropped to 44.2 from 46.3 in July with last month being the lowest seen since the Covid-19 lockdown-hit period in April 2021.
Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
Last month’s indices added to sustained declines in output and new orders and as a result, business confidence remained one of the weakest on record, leading to a renewed drop in employment.
Surveyed businesses indicated the election had a notable toll on economic activity during August.
Output fell steeply and at the quickest pace for 16 months, with the construction sector seeing the greatest decline.
New business inflows also fell at a sharp and accelerated pace, with the election, rapid inflation and resulting lack of cash flow reportedly leading to a sustained drop in client orders.
On the positive side, however, lower demand suppressed inflationary pressures, with costs and charges rising at the softest rates since January.
“Although the survey indicated that inflationary pressures eased somewhat in August, new orders fell for the fifth straight month due to political uncertainty and higher input prices,” said Mulalo Madula, economist at Stanbic Bank.
Election-linked disruption meant that some vendors were unable to deliver inputs, leading to the first, albeit marginal, lengthening of lead times since the first wave of the pandemic in early 2020.
At the same time, businesses made fewer purchases of inputs due to deteriorating sales, while inventories were cut for the first time since January amid efforts to avoid dead stocks.
There were also mentions of higher fuel prices, exchange rate pressures and a greater tax burden by businesses during the survey.
However, increased demand from Europe kept the new export business in expansionary territory.
Going forward, majority of firms surveyed remain pessimistic about their prospects.
Only 10 per cent of respondents gave a positive forecast for output over the next 12 months, amid fears that the inflation-driven downturn in the economy will continue.
The Stanbic Bank Kenya PMI is compiled by American analytics firm– S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies.
The panel is stratified by detailed sector and company workforce size, based on contributions to GDP.
Sectors covered by the survey include agriculture, mining, manufacturing, construction, wholesale, retail and services.
From the survey, the outlook was the third-worst on record behind those seen in April and May, Stanbic Bank said in its PMI survey released yesterday.
Notably, firms remain cautious on the outlook for output in the next 12 months.
"Looking ahead, the trajectory of underlying cost pressures could depend on the timing of the removal of fuel subsidies in addition to the upcoming short rain season, which will be key for food inflation,” Madula said.