Kenya: Private Sector Activity Falls at a Slower Rate in June - Report

Nairobi — The Kenyan private sector economy registered a further deterioration in business conditions during June, latest PMI data showed, as output and new orders declined again amid the coronavirus disease 2019 (COVID-19) pandemic.

However, the rate of downturn eased considerably from May, driven by relaxed curfew measures and a recovery in sales at several businesses.

Employment numbers meanwhile fell at the softest pace in three months, as purchasing activity also dropped at a much weaker rate.

Firms saw the first upturn in new export orders since February, as trade with Europe strengthened.

At the same time, overall cost pressures fell for a second month running due to further salary cuts.

The headline figure derived from the survey is the Purchasing Managers' Index. Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

At 46.6 in June, the headline index recorded a notable improvement from 36.7 in May, to signal a far softer - but still solid - decline in business conditions at Kenyan firms.

This continued the run of deterioration that began in January and accelerated due to COVID19, but marked the weakest contraction in four months.

Both output and new orders fell at considerably slower rates in June, as the reduction in curfew hours helped many businesses to increase operating hours and reopen premises.

Relaxed measures in Europe meanwhile led to a slight improvement in export demand that was the first since February.

However, firms still saw a drop in customer demand overall due to a reluctance to travel.

This softening led to weaker declines in employment and input purchases at the end of the second quarter. Job numbers dropped at the softest pace since March, albeit one that was still solid.

Meanwhile, higher sales at some businesses improved cash flow and enabled them to purchase more inputs, although demand was still lower than in May.

Lead times across the Kenyan private sector fell in June, as suppliers faced weaker capacity constraints and higher competition for deliveries.

At the same time, a number of goods remained in short supply due to the pandemic, leading to higher purchase prices.

Efforts to lower costs led firms to cut wages for the third month running, leading to back-to-back falls in overall input costs for the first time in the series history. Selling charges dropped at a solid pace, albeit one that was weaker than in May.

Finally, the outlook for business activity worsened again in June, dropping to the weakest since August 2016. Overall confidence was linked to rising exports and plans to diversify products and expand company premises.

"Private sector activity fell at a slower rate in June, albeit from a marked level in April. A resumption in cargo flights in addition to the gradual re-opening of economies around the world, is underpinning external demand. However, the damage done by COVID-19 could last for the better part of the next 6 months, notwithstanding what official growth statistics may indicate. The impact from the loss of jobs and subsequent decline in consumption will probably be felt for a while," Jibran Qureishi, Stanbic Bank's Regional Economist E.A said.

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