For the third straight month, Kenya’s private sector economy has gotten worse with latest data by Stanbic Kenya showing that the sector experienced a reduction in new orders, an increase in prices, and interference from political instability.
Stanbic Bank Kenya Purchasing Managers’ Index for July stood at 46.8, down from 48.6 in June. The 1.8 drop not only signals a continued contraction of the private business sector in the past three months but also the steepest contraction over the past year.
About PMI
Purchasing Managers’ Index (PMI) is an index compiled by S&P Global in partnership with Stanbic Bank Kenya that tracks the performance of private businesses in Kenya. The index is compiled from responses to questionnaires sent to purchasing managers of 400 private companies in a wide range of economic sectors.
The weighted average of five indexes makes up the index: New orders, output, employment, suppliers’ delivery times, and stocks of purchases. A sector expansion is indicated by values over 50, and a contraction is shown by values below 50. A value of 50 shows no change.
The index only focuses on the private sector because it’s a good indicator due to its sensitivity to market conditions. Private businesses respond very fast to changes in demand, supply, prices, and economic shocks.
This index helps investors and businesses to make decisions about hiring, supply chain planning, investments, etc.
Output and Demand
Output in the private sector generally reduced for the third consecutive month, mainly as a result of lower activity in the production of goods and services. Anti-government protests, harsh economic conditions, and reduced customer orders were noted as the main drivers. Despite the setbacks, the agricultural, construction and wholesale, and retail sectors recorded an increase in output.
The level of new orders in the business continued to contract. Increased inflation, lower customer spending as well and protests were cited as the main reasons for decreased new orders.
“The Stanbic Kenya PMI suggests that private sector output and new orders weakened for a third month in a row, reflecting the negative impact that recent protests have had on businesses. It also reflected harsh economic conditions crimping consumer spending, more so in services and manufacturing,” said Christopher Legilisho, Economist at Standard Bank.
Employment
Levels of employment remained nearly stable during the month. However, the seasonally adjusted employment index dropped compared to June, when it remained in the growth territory. The majority of respondents reduced jobs as a result of dwindling consumer demand, even while some added extra employees to handle strong workloads and support new initiatives. The massive staff cuts offset hiring.
Quantity of purchase and deliveries.
The quantity of purchases made reduced accordingly since demand was low. This reduction reflected the steepest plunge in purchases for the third time in a row in close to three years. Major purchase declines were in the manufacturing sector. Moreover, for six months now, delivery time for suppliers has been cut short.
Stocks of purchases.
Manufacturing and construction firms experienced a decline in stocks of purchases in a bid to tighten their inflows of input in July, contrary to agriculture, services companies, and wholesale and retail, which posted uplifts in their purchases.
Prices.
In overall, Kenyan companies have had an input price inflation attributed to an increase in the respective indices. Meanwhile, purchase prices in the private sector companies signaled a surge at the beginning of the third quarter, which was mainly attributed to increased fuel prices and high taxes. Finally, output prices went up steadily in July. This was linked to high operating costs in companies that cut across most sectors in the economy.
Business expectations
Despite the contraction in the private sector, businesses remained optimistic and confident. The future output index climbed upper compared to June, recording the highest reading since May 2024. About 21% of the companies polled said they expected to increase production, citing intentions to create additional branches, buy land, introduce new items, and implement new marketing techniques.
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