Kenya's Private Sector Activity Slow Streak Continues

Nairobi — A new survey has revealed that growth momentum in Kenya's private sector slowed again at the start of the third quarter of the year, as businesses reported weaker expansions in output, new orders, employment and purchasing.

The Purchasing Managers' Index survey also reveals that cost inflationary pressures rose to a 16-month high as tax changes resulted in a sharp uptick in purchase prices.

As such, the headline index fell for a second straight month from 51 in June to 50.6 in July, to indicate only a marginal improvement in operating conditions across Kenya's private sector.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.

According to the survey, the three biggest components of the PMI; the output, new orders and employment indices, all fell to three-month lows, but remained above the 50.0 no-change mark to indicate further expansions.

In July, the report notes that Kenyan businesses saw an increase in output during July as market conditions recovered further from the reintroduction of lock down measures in April, for the third month running.

"However, the expansion was only marginal and slower than that seen in June," the survey noted, adding that while 27 percent of panelists saw a rise in output, around 26 percent reported a decrease.

In a similar fashion to output, survey noted that the seasonally adjusted new orders index pointed to a third successive rise in sales at Kenyan firms during July.

That said, barring the sharp decline in April, the latest upturn was the weakest seen since new orders began to recover from the first wave of the pandemic.

The survey also indicated that rising demand levels encouraged businesses to increase their staffing levels in July.

As such, several firms reported taking on more temporary staff in order to complete new orders.

During the month, the rate of job creation was marginal, however, and the weakest for three months.

At the sector level, job numbers rose across manufacturing, construction, agriculture and wholesale and retail, but fell in services.

"Businesses that saw an increase in new order volumes often pointed to an improvement in cash flow and increased marketing activity. On the other hand, some firms reported losing customers due to the ongoing effect of the pandemic," the survey said.

"Barring the sharp downturn in April, the rate of growth was the joint-weakest since conditions began to improve after the first wave of the pandemic," the report notes.

Commenting on the July survey findings, Kuria Kamau, Fixed Income and Currency Strategist at Stanbic Bank said domestic demand improved by the second slowest pace since the lifting of public health restrictions after the first wave of pandemic, with some firms reporting a drop in customer numbers.

He added that firms in agriculture, construction and services witnessed an increase in demand and output while those in manufacturing and trade saw declines.

"To meet this marginal increase in demand, firms also increased their output slightly as evidenced by slight increases in staffing levels and the quantity of purchases. Both input and output price inflation accelerated due to an increase in import taxes, fuel costs and shortages in some raw materials. The 12 month outlook by firms rose to its highest level in 5 months but remains below its long term average," Kamau said.

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