Business activity in Kenya shrank sharply in March as the hike in fuel prices and COVID-19 restrictions hit key sectors of the economy, such as the hospitality and entertainment industry.
The Stanbic Bank Kenya Purchasing Managers Index (PMI), which measures the private sector’s health, fell to a nine-month low of 50.6 in March, from 50.9 in February.
Most businesses reported minimal growth in output and a slow down in new orders during the month, resulting in reduced business activity.
Super Petrol prices rose by Kes 7.63 to retail at Kes 122.81 per litre in March following the latest Energy and Petroleum Regulatory Authority (EPRA) review. The hike in pump prices also affected Diesel and Kerosene, whose prices leapt by Kes 5.75 and Kes 5.41 per litre.
The fuel price hike led to an increase in the purchase price for most goods and services and, as a result, put pressure on firms’ margins, according to the Stanbic PMI report.
Additionally, the measures put in place by the government to curb the spread of the new wave of COVID-19, which include lockdowns as well as a nationwide curfew, brought a lot of uncertainty to the economy.
As a result, Households restricted their spending leading to a slump in both activity and demand growth in March.
Businesses surveyed by Stanbic Bank said that sales grew at the slowest rate since November 2020, and export orders dwindled. Output grew at the weakest pace in nine months.
The report by Stanbic Bank Kenya noted that private sector employment improved in March, although at a moderate pace. Salaries for workers in the Kenyan private sector dipped in March, marking the fifth consecutive month of decline.
Business expectations for the future fell in March. Only 25% of the businesses expect an increase in output in the remaining months of 2021. Most companies said they expect no change in the level of output. Businesses also expressed concern about the negative impact of covid19 on demand.