Kenya private sector performance deteriorates in the month of May 

  • Headline PMI index registers at 49.9 in May
  • Business activity declines at marginal pace
  • Firms cut output charges despite greater cost pressures

Nairobi: June 6, 2017: The performance of the Kenyan private sector was stagnant in May as the Stanbic Bank – HIS Markit Purchasing Manager’s Index (PMI) posted just below the neutral 50.0 threshold.

A fall in output, albeit marginal, contributed to the weakness of overall business conditions.

At 49.9 in May, down from April’s 50.3, the seasonally adjusted PMI signaled broadly stagnant business conditions. Notably, the index reading was the second-lowest -behind March- observed since the inception of the series.

Commenting on May’s survey findings, Stanbic Bank Regional Economist for East Africa Jibran Qureshi said: “As we highlighted last month, the recovery in business conditions could prove to be transitory, due to a cocktail of dangerous headwinds. The PMI contracted again as output subsided and growth in new orders slowed.  Financial constraints and weak consumer demand due to the upcoming elections in August are the two leading attributors to the depressed performance of the private sector.”

The fall in the PMI index was mainly driven by reduced output, which declined for the third time in four months, albeit fractionally. Those firms that recorded a decrease in activity blamed the upcoming elections, weaker purchasing power among clients and a lower customer turnout.

According to anecdotal evidence, a rise in new client wins was supplemented by promotional activities. New export orders expanded for the tenth consecutive month, although, the rate of growth was modest overall.

The ongoing growth in new orders (and subsequent capacity pressures) encouraged firms to increase their payroll numbers. The rate of job creation quickened to a five-month high, but was modest overall. Subsequently, the rate of backlog accumulation quickened to a three-month high and was marked. Financial constraints faced by firms, and rising new order levels have placed pressure on operating capacity.

Buying activity increased during May, but the rate of growth was the weakest observed in 19 months. At the same time, firms raised their input stocks at the fastest pace in three months.

The survey also indicated that firms faced upward inflationary pressures due to higher fuel costs and a general increase in raw material prices.