- Purchasing activity also dropped, albeit only modestly.
- Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration.
Kenyan private sector firms faced unprecedented inflationary pressures in October, driven by a further rise in fuel prices and on-going currency weakness.
This saw input costs rise at the quickest pace since the survey began nearly a decade ago, leading companies to also increase selling prices at a record rate.
Consequently, the latest data by Stanbic Bank signalled a worsening of the demand picture as heightened prices eroded spending power and led to a marked fall in new business.
The headline Purchasing Managers’ Index (PMI) dropped to 46.2 points in October compared to 47.8 points the previous month. This was the lowest performance since July.
Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show deterioration.
"Output and new orders contracted across all sectors surveyed, with new orders falling the fastest in the construction, wholesale and retail sectors'', the report reads.
It adds that the cost-of-living pressures and cash flow difficulties saw customer demand decline, while weaker output and lower workloads led to an increased rate of job cuts.
“Meanwhile, Kenyan businesses reported burgeoning inventories, and therefore raised their selling prices in October to protect their profit margins,'' Christopher Legilisho, an economist at Standard Bank said.
Output levels were reduced accordingly, while firms also made their joint-fastest cut to workforces since the middle of 2020.
The rate of decline was the second fastest since August 2022 and close to the marked downturn seen in July.
Business conditions worsened amid a rapid pick-up of cost pressures across the private sector economy, with survey data signalling the strongest rise in input prices since data collection started in 2014.
Around 46 per cent of monitored firms reported that total expenses had increased from September, driven by a further uplift in fuel prices and associated transport costs.
In addition, companies noted that on-going currency weakness and increased tax burdens had added to costs.
The shilling has been falling against major international currencies, with the latest data by the National Treasury indicating an average annual drop of 20 per cent for the US dollar.
On Monday, the shilling traded 151.35 units against the greenback, having dropped further from 151.30 on Friday last week.
In order to maintain sufficient margins, Kenyan companies also reported an unprecedented increase in selling prices in October, with the rate of inflation climbing above the previous high in mid-2022.
The latest survey data indicated a marked and accelerated decline in new order volumes, which was broad-based across each of the five sub-sectors but steered by construction and wholesale and retail.
Similarly, output levels contracted sharply and to a greater degree than in September.
Firms tightened spending on inputs and labour, with employment numbers reducing at the joint-strongest rate since June 2020, following a renewed (but slight) fall in September.
Purchasing activity also dropped, albeit only modestly.
Meanwhile, there was a slight improvement in vendor performance, after lead times had lengthened slightly in the previous month. This is attributed to cash flow concerns at vendors, leading them to make quicker deliveries in order to boost payments.
Business expectations for the coming 12 months remained muted in October, with firms showing a modest degree of positivity that was little changed from September.
That said, optimism was still stronger than the record low in April. Hopes that sales and activity will pick up contributed to a renewed increase in firms' inventory holdings.
“Encouragingly, firms involved in new export orders remained robust, with greater demand from both Africa and Europe. However, business expectations for the next 12 months are quite weak,'' Legilisho said.