Business expectations in Kenya hit record low on high inflation

Political unrest also clouded the business outlook.

In Summary

•Price pressures ease but remain marked.

•Year-ahead outlook falls to weakest in survey's history.

Beer production at the Naivasha-based Keroche Breweries Limited
Beer production at the Naivasha-based Keroche Breweries Limited
Image: FILE

Kenyan companies posted their lowest confidence levels on record in April, a survey has shown, as inflation and political unrest led to a sharp fall in customer demand and clouded the business outlook.

The Stanbic Bank Kenya Purchasing Managers' Index (PMI) registered below the 50 mark for the third month in a row in April, dropping to 47.2 from 49.2 in March.

The index also signalled a solid and faster decline in the health of the private sector economy at the start of the second quarter.

Activity levels and input purchases also fell sharply, but employment numbers continued to rise.

On a positive note, input cost pressures showed further signs of having peaked, dropping to their lowest recorded in 2023 so far, though remaining steep.

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

The cost-of-living crisis continued to hinder business performance, according to survey panellists, while an associated bout of political unrest led to a marked drop in client demand.

New business inflows fell sharply and at a quicker pace than inMarch, despite a sustained upturn in export sales.

"Despite continued growth in export sales, deteriorating domestic market conditions due in large part to higher costs and political protests dampened business activity and domestic demand as cost pressures continued to rise," said Mulalo Madula, economist at Standard Bank.

Similarly, business activity declined for the third month in succession, and the rate of contraction was much sharper than in the previous survey period.

Sector data indicated that the downturn was led by manufacturing and services, contrasting with expansions in the agriculture, construction and wholesale and retail categories.

Concerns over the impact of high inflation led to a marked drop in firms' output expectations for the next 12 months,which declined to their lowest level since the survey began inJanuary 2014.

While sentiment remained positive, only eight per cent of respondents predicted activity to rise over the forthcoming year.

Purchasing levels declined solidly in April, following a slight increase in March.

Despite this, a sharp cut in activity allowed firms to store higher volumes of inputs, with some respondents citing concerns that supplies could run short due to limited cashflow.

In contrast to purchasing, Kenyan companies added to their workforces in April.

Employment numbers rose at the quickest pace in 2023 so far, albeit only slightly.

The upturn came amid a further increase in outstanding work, the third in the past four months.

On the price front, there were signs that cost pressures were moderating at the start of the second quarter.

Input prices rose at the slowest rate in four months, helped by softening demand and reports of an improvement in the availability of local goods,which also supported a slight reduction in average lead times.

That said, the pace of cost inflation remained steep overall, as firms again highlighted rising import prices due to a depreciation in the Kenyan shilling against the US dollar.

Rising costs continued to be passed on to customers in April, indicated by another steep increase in output charges.

Like input prices, the rate of inflation slowed from March but remained faster than the long-run trend.

“The outlook for output for the upcoming 12 months significantly decreased, reaching the lowest level since the survey's inception. This was largely due to worries about the effects of high inflation as power tariffs were increased by around 19 per cent in April," Madula said.

Overall year-on-year inflation is likely to slow, having fallen to 7.9 per cent in April from 9.2 per cent in March, Madula notes, as statistical base effects continue to unwind, although underlying costs for firms are likely to remain elevated.

The Stanbic Bank Kenya PMI is compiled by 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.

The sectors covered by the survey include agriculture, mining, manufacturing, construction, wholesale, retail and services.

Data were first collected January 2014. Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month.

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