Private Sector Activity Slumps Further in March

According to the most recent PMI survey results, Kenya’s private sector activity continued to decline in March as business orders declined for a second consecutive month amidst increasing prices and cash flow issues.

Inflationary pressures persisted throughout the month, with about 30% of the businesses surveyed reporting an increase in purchase prices due to difficulty obtaining US dollars and deteriorating exchange rates.

The most recent cost rise caused output price inflation to reach a five-month high, and related reports of shortages of imported products prompted businesses to seek safety stockpiles.

Nevertheless, the activity drop in March was somewhat less severe than the initial decline in February as businesses indicated new increases in hiring and consumer spending.

The headline Stanbic Purchasing Managers’ Index (PMI) number increased from a six-month low of 46.6 in February to 49.2 as a result.

The softer drop in business conditions was due to March’s weaker declines in output and new orders.

Some respondents reported a recovery in customer orders, especially from abroad, while others reported a decline in demand due to high prices and a lack of money in circulation.

“Although the pace of deterioration has slowed, Kenya saw business conditions continue to decline in March, as the PMI remains just below 50. Both output and new orders fell in March, particularly in wholesale and retail trade, due to lower demand, especially as price pressures have accelerated,” said Mulalo Madula, Economist at Standard Bank.

Sector data indicated that wholesale and retail businesses were at the center of the most recent production and sales declines.

Manufacturing, agriculture, construction, and services, on the other hand, saw increases in both metrics.

The statistics also showed that, despite modest growth in both areas, employment, and spending rose again in March.

“The rise in purchasing reflected some efforts to build inventories of inputs, as firms reported that difficulties accessing US dollars had led to a shortage of commodities and longer delivery times,” the survey noted.

The Kenyan shilling’s depreciation against the US dollar, meanwhile, caused yet another significant rise in prices.

Since February, about 30% of businesses have seen a rise in purchase costs, with higher taxes and fuel prices also being mentioned.

Firms increased their product prices at the fastest rate in five months as a result of overall cost inflation which was still among the highest recorded since the survey’s inception in January 2014.

Finally, despite reaching a three-month low in March, the outlook for future business activity stayed positive and above the level experienced for the majority of 2022.

In the hopes that demand will start to rebound, businesses frequently discussed plans to open new branches and expand capacity over the upcoming year.