Kenya records robust improvement in business conditions in June – PMI report

Mr. Jibran Qureishi, Economist at CfC Stanbic Bank

The Latest Purchasing Managers’ Index™ (PMI™) data released by CfC Stanbic Bank indicate a robust growth of the Kenya’s private sector in the month of June, characterized by strong expansions in both output and new orders.

The overall expansion in growth during the period was bolstered by new project opportunities and high customer turnout, while companies reported improved marketing strategies as the driving factor behind stronger order books. Data also showed that higher new export work also supported growth of new business in June, with the rate of increase marked and above the historical average, according to analysts at CfC Stanbic Bank.

Commenting on June’s survey findings, Jibran Qureishi, Economist at CfC Stanbic Bank said: “The latest PMI reading of 55.3 in June from 55.1 in May further supports our view of a rebound in economic activity in the second quarter of the year. With exceptionally good rains and a recovery in global tea prices, the agriculture sector was probably a dominant driver of this improving growth. Moreover, the expansionary fiscal policy for FY2015/16 is likely to further underpin growth in the Kenyan private sector.”

Mr Qureishi further noted that an important trend of the recent PMI data remains the elevated cost pressures emanating from the weaker currency.

“Risks remain tilted towards a tighter monetary policy stance by the central bank which could assist in easing off some of the pressures on the currency, however also pose as a downside risk to output if the tightening results in a suppression of credit growth to the private sector,” he said.

Cost pressure

On the price front, cost pressures intensified for the third straight month in June, with the rate of increase the most marked in a year. Underlying data suggested that the rise in overall input prices was mainly driven by higher purchasing costs, amid reports of another depreciation of the Kenyan shilling versus the US dollar.

As a result, companies in Kenya raised their selling prices during June, with the latest increase faster than the series average. Anecdotal evidence linked higher charges to a general rise in input prices, particularly food and oil-related items

Incoming new work led Kenyan private sector firms to raise their input buying further in June. The latest expansion was robust overall, mirroring the trends seen for output and new orders. Subsequently, pre-production inventories rose at the sharpest pace so far this year.

Job creation was evident, although the rate of hiring eased to a three-month low. Moreover, the latest increase in employment was weaker than the average recorded over the survey’s short history, albeit solid overall. Meanwhile, backlogs of work barely rose in the latest period.