Private Sector Activity Declines Further in April

According to the most recent PMI survey results, Kenya’s private sector activity continued to deteriorate in April as political upheaval and inflation caused a severe decline in consumer demand and clouded the business outlook.

Companies recorded their lowest levels of confidence ever during the month due to a slowdown in activity and worry about the effects of high inflation.

“While sentiment remained positive, only 8 percent of respondents predicted activity to rise over the forthcoming year,” the survey noted.

The Stanbic Purchasing Managers’ Index (PMI) headline result dropped below the 50.0 no-change threshold for the third consecutive month due to the deterioration in business conditions.

The number decreased from 49.2 in March to 47.2 now.

Business conditions in the preceding month improved when the reading is above 50.0, while they deteriorated when the reading is below 50.0.

“In April, Kenya’s private sector output broadly deteriorated across several sectors covered by the PMI survey as the country experienced another contraction that began in February and continued through to April. Despite continued growth in export sales, deteriorating domestic market conditions due in large part to higher costs and political protests dampened business activity and domestic demand as cost pressures continued to rise,” said Mulalo Madula, Economist at Standard Bank.

The cost-of-living problem, according to poll respondents, is still having a negative impact on business performance, and the associated political upheaval has significantly decreased client demand.

Despite a persistent increase in export sales, the poll indicated that new business inflows decreased sharply and more quickly than they had in March.

The same was true for business activity, which fell for the third consecutive month at a far sharper rate than during the preceding survey period.

According to sector data, manufacturing, and services were at the forefront of the downturn, in contrast to growth in the areas of agriculture, construction, and wholesale & retail.

Additionally, after a minor gain in March, purchase levels sharply decreased in April.

Despite this, a steep decline in activity allowed businesses to stock up on more inputs, despite some respondents’ worries that supplies would run low due to a lack of cash flow.

In April, Kenyan businesses increased their workforces as opposed to making purchases. Even though it was just little, employment numbers increased in 2023 at the fastest rate to date.

The improvement coincided with a third increase in unfinished work in the previous four months.

At the beginning of the second quarter, there were indications that price pressures were easing.

Due to softer demand and rumors of better local product supply, input costs increased at their slowest rate in four months. This helped to support a minor decrease in typical lead times.

Overall, the rate of cost inflation remained rapid as businesses once more pointed to growing import costs as a result of the shilling’s devaluation versus the US dollar.

Another sharp increase in output charges in April suggested that rising costs were still being passed down to customers.

“Like input prices, the rate of inflation slowed from March but remained faster than the long-run trend,” the survey noted.