Solid, but slower improvement in operating conditions

03 Aug 2018

Data collected 12-27 July

• PMI falls to 53.6 in July

• Slower, but still marked, rises in output and new business

• Input cost inflation picks up to fastest since March

 Growth in Kenya’s private sector lost momentum as expansions in output and new orders eased to the slowest rates in eight and six months respectively. Moreover, firms added to their payroll numbers at a slower and marginal pace. On the price front, firms faced the fastest rise in overall input costs since March, while firms passed on higher cost burdens to clients at a slower pace.

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

Commenting on July’s survey findings, Jibran Qureishi, Regional Economist E.A at Stanbic Bank said:

“Kenya’s private sector activity continued to expand although the pace of acceleration was moderating, but there is no cause for alarm. The health of the private sector remains sound and the decline in the PMI in July is still above the historical average since data collection began. Anectodal evidence in July seems to be pointing to rising input costs for firms. That said, other tax measures may still come through over the coming months, subject to pending court decisions. In fact, the trend of higher input costs around July is actually quite seasonal according to the PMI survey, however the recent decline in food prices should bode well for consumption spending over the coming months. ”

The main findings of the July survey were as follows:

The seasonally adjusted PMI fell further from 55.0 in June to 53.6 in July. The latest reading signalled the slowest improvement in the health of the sector since January, but was consistent with a marked expansion that was stronger than the long-run trend (52.9).

Kenyan private sector output rose in July, thereby extending the period of expansion to eight months. The latest upturn was marked despite easing to the slowest in this sequence. Anecdotal evidence pointed to favourable demand conditions.

New business placed at Kenyan private sector companies rose in July. The rate of growth eased to the slowest since January, but remained sharp. Strong market demand was cited as the key factor by panellists behind the latest rise in new orders. Meanwhile, new export orders rose at the fastest pace since March.

Reflecting sustained periods of expansion in output and new orders, Kenyan firms were encouraged to raise staffing levels during July. That said, job creation slowed to a marginal pace.

In response to strong demand conditions, Kenyan firms also raised their purchasing activity for the eighth consecutive month during July. Despite easing to the slowest since January, the rate of growth was sharp and outstripped the historical average. In tandem with the expansion in input buying, firms raised their pre-production inventories at a sharp pace, albeit the weakest since January.

As has been the case since February 2015, Kenyan firms faced higher overall input costs in July. Furthermore, the rate of inflation was the fastest since March. Anecdotal evidence pointed to a limited supply of raw materials and higher fuel costs. Meanwhile, staff costs rose at a modest pace.

Despite stronger inflationary pressures, firms raised their average selling prices at the slowest pace since April. However, the rate of inflation was solid overall. Where an increase in output charges was noted, firms commented on the pass through of higher cost burdens to clients.

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