GLOOMY OUTLOOK

Demos drive private sector to sharpest decline in seven months

The drop in sales tempered efforts to expand capacity at Kenyan companies in June.

In Summary

• After registering a solid expansion midway through the quarter, private sector output dropped markedly in June, in line with a renewed and steep fall in new business intakes.

•The downturn was partially softened by a rise in new orders across manufacturing, which was the only monitored sector to register growth in June.

Mombasa protesters set vehicles ablaze during demonstrations on July 2, 2024.
Mombasa protesters set vehicles ablaze during demonstrations on July 2, 2024.
Image: CHARLES MGHENY

Kenya's private sector activity has taken a beating from the on-going demonstrations after the street protests hurt Kenyan's purchasing power.

The Stanbic Bank Kenya Purchasing Managers' Index (PMI) dropped to 47.2 in June from 51.8 in May, as tough economic conditions caused by the cost-of-living crisis and protests related to the Finance Bill negatively impacted sales volumes.

The index attributes the drop to widespread economic challenges and a negative impact on sales from protests and policy uncertainty.

"Tough economic conditions brought on by the cost-of-living crisis, as well as protests surrounding the country's Finance Bill hurt sales volumes," Stanbic Bank Kenya said in the survey.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration. The headline PMI fell below the 50 neutral mark to 47.2 in June, signalling a solid deterioration in the health of Kenya's private sector.

New business intakes dropped at the fastest rate since November last year, leading to a drop in business confidence and weaker job creation.

Although Kenyan firms also saw a renewed increase in their input costs in June, the rate of inflation was mild and had little impact on selling charges.

The decline was the sharpest recorded in seven months, which contrasted notably with the PMI's 16-month high of 51.8 in May.

 After registering a solid expansion midway through the quarter, private sector output dropped markedly in June, in line with a renewed and steep fall in new business intakes.

The downturn was partially softened by a rise in new orders across manufacturing, which was the only monitored sector to register growth in June.

The drop in sales tempered efforts to expand capacity at Kenyan companies in June.

Purchasing activity decreased for the first time in three months, leading to a fresh reduction in firms' inventories of inputs.

“However, the pace of stock depletion was only modest. Employment numbers continued to rise, but the increase was the weakest seen in the year-to-date. Greater availability of raw materials and competition between vendors led to a further improvement in supplier performance during June,” the PMI report states.

The reduction in delivery times was the least marked since February.

Input prices in the Kenyan economy rose for the first time in three months in June, following a near-record decrease in the previous survey period.

Higher taxation on products was commonly noted by respondents as driving up costs, offsetting further reports of reduced fuel prices and a positive impact on import prices from stronger exchange rates.

"In June, momentum in private sector activity declined, reflecting several concerns, top of the list being the proposed increase in taxes via the Finance Bill 2024, and the widespread protests in response," Stanbic Bank economist, Christopher Legilisho said.

However, the rate of input price inflation was modest and much softer than typically seen over the past four years.

Cost increases were cantered on the wholesale & retail, agriculture and services sectors, comparing with falls in manufacturing and construction.

With cost pressures relatively mild, Kenyan firms posted only a slight rise in their output prices in June.

Business expectations towards future activity meanwhile slipped to a four-month low, as economic challenges led firms to show less optimism towards their sales and output forecasts.

 

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