- Output and new orders both recorded sharp falls, leading to renewed cuts in employment and purchasing.
- While job losses were only mild overall, they were the strongest seen since April 2021.
Kenya's private sector performance deteriorated in the second month of 2023, the first since August last year, as several key metrics fell into contraction territory.
Output and new orders both recorded sharp falls, leading to renewed cuts in employment and purchasing.
The sharp fall in sales came amid reports that cost-of-living pressures and cash flow problems had stunted customer spending.
At the same time, currency weakness and reports of increased tax burdens fed through to a sharper rise in input costs, and one that was among the fastest seen since the series began in 2014.
The local currency has since dropped 12 points against the greenback in the past year, trading at the lowest level of 128 for the better part of Friday.
While some firms passed these costs on to customers, the rate of charge inflation was broadly unchanged from January and much softer than that of input prices.
The headline figure derived from the survey is the Purchasing Managers’ Index (PMI) sunk to an 11-month low of 46.6 points compared to 52 points in January.
Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
The reading indicated a solid deterioration in operating conditions, driven by renewed contractions in many of the covered metrics.
Demand weakness was particularly clear in the latest survey data, as companies reported a sharp contraction in new order volumes following a solid upturn in January.
Survey panellists frequently noted that customers had pared back spending due to high inflation and a lack of money in circulation. Firms also suffered from a marked fall in export sales, one of the fastest seen on record.
The downturn in sales led Kenyan companies to make renewed cuts to activity, employment and purchasing in February.
Output fell sharply for the first time in four months, while input purchases fell for the first time since last August.
While job losses were only mild overall, they were the strongest seen since April 2021.
Supply chain performance was broadly stable in February, Output and new orders fall sharply Employment, purchasing and inventories each decreased Input cost inflation accelerates to a marked rate.
According to Mulalo Madula, an economist at Standard Bank, the Kenya PMI fell into contraction territory in February as cash flow issues and cost of living weighed on demand.
"With currency depreciation inducing higher import costs and reports of tax burdens, the increase in input costs and consequently output charges are amongst the highest since the series began in 2014,'' Madula said.
He adds that while the sales decline was broad-based, agriculture is the only sector where sales increased.
Notably, the decrease in activity was uneven across firms in various sectors, with 38 per cent of panellists reporting a drop in activity compared with a quarter of respondents reporting an increase.
But then, despite everything, businesses are still optimistic about the outlook for the next 12 months, with the future output index rising for the second month in a row.
Some firms mentioned shortages of items such as timber and foodstuffs, as well as delays at ports. The disruption contributed to a fall in stocks of purchases.
Cost pressures accelerated to a notable pace during February, the highest for five months and among the quickest on record.
Purchase price inflation was the key driver, according to panellists, amid reports of increased taxes and higher import costs as the exchange rate against the US dollar worsened.
Output charges rose accordingly, although the rate of inflation was broadly unchanged from January and much softer than the increase in costs.
Even so, business confidence towards future output strengthened markedly in February and was at its highest level in nearly three years.