Kenya’s private sector growth drops to a record low – PMI Report

The Latest Purchasing Managers’ Index™ (PMI™) data released by CfC Stanbic Bank indicate that the Kenyan private sector growth stalled at the end of the third quarter (Q3). Business conditions improved only modestly in September, with the respective rates of expansion in output and new work easing to record lows.

The rates of expansion in output and new business were both the slowest on record in September, reflecting the overall trend signalled by the headline index. Activity rose only modestly, with data pointing to a sharp easing in new order growth. New business gains were reportedly undermined by a number of factors including currency weakness and the on-goingteachers’ strikes.

Commenting on September’s survey findings, Jibran Qureishi, Economist at CfC Stanbic Bank said: “The PMI has fallen to its lowest level in September since data collection began back in January 2014. The weaker exchange rate has certainly increased import costs for most firms which has consequently suppressed their profit margins, perhaps also leading to the significant slowdown in workforce growth.”

Mr Qureishi further noted that the currency is likely to appreciate in the coming months due to the rise in real yields in the Kenyan money markets which will probably increase portfolio inflows and thus lend some much needed support to the balance of payments.

“Economic growth which expanded by a healthy 5.5% y/y in Q2 2015 from 4.9% y/y in the previous quarter will probably subside slightly in the third quarter this year judging by the activity of the CfC Stanbic PMI. Higher interest rates may only be a temporary measure as rates are likely to move lower while the broad stability in the currency could start to control rising costs that most firms have been suffering from,” he added.

The slowdown of the Kenyan private sector as a whole was reinforced further by the weakest rise in employment in the series history. Payroll numbers increased only marginally in September, with the majority of respondents (83%) noting no change since August.

Similarly, input buying rose at the slowest pace since the survey began in January 2014. Anecdotal evidence generally linked changes in purchasing activity to the perceived strength of client demand. Subsequently, the rate of pre-production inventory building also eased, with reports of higher new work less frequent than in previous months.

On the price front, total input costs rose sharply in September. The latest increase was the most marked in a year-and-a-half, driven by a steep hike in purchase prices. Higher costs stemmed from the weakness of the shilling versus the dollar, and a number of firms were able to pass on these pressures by way of raising output charges.