Kenyan businesses suffered a marked fall in demand at the start of the third quarter of the year, the latest PMI data by Stanbic Bank showed, as customers continued to rein in spending amid steep inflation.
Political protests accelerated the downturn, according to surveyed firms, leading to a sharp contraction in output that was the fastest since August last year.
Meanwhile, a deterioration in the exchange rate and reports of rising fuel prices and taxes culminated in another substantial rise in business costs in July, with the rate of input price inflation among the quickest since the survey began in 2014.
Output prices subsequently increased to a sharper degree. Business optimism waned slightly, while jobs growth eased. The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI). Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration.
The latest reading indicated a greater slump in operating conditions over July, with the pace of deterioration accelerating to the fastest in almost a year. At 45.5, the index was down from 47.8 in June, registering below the 50.0 neutral mark for the sixth month in a row.
Deteriorating operating conditions were driven by a sharp and accelerated fall in new business inflows, as Kenyan firms highlighted a drop in client demand due to the cost of living crisis. Alongside this, several firms noted that political demonstrations had adversely affected sales. Four of the five monitored sectors recorded a decline in sales in July. Agriculture was the only category to post inside the growth territory.
With overall sales falling rapidly, Kenyan businesses indicated a sharp drop in output over the course of July, which was the second-worst since 2017 when excluding lockdown-affected periods. Firms often noted that weak orders resulted in cash flow issues that limited activity
Price pressures at Kenyan companies remained severe in July, amid reports of a sharp rise in input costs due to a decline in the shilling exchange rate.
Higher fuel prices and increased tax burdens were also cited, while some firms reportedly upped their workers’ salaries amid the cost-of-living crisis. Notably, the rise in overall input costs was one of the sharpest seen since data collection began in 2014, resulting in a robust and faster uplift in selling charges.
Heightened costs and weak demand contributed to a cooling of employment growth in July, with firms posting only a slight rise in workforce numbers. Concurrently, businesses cut their input purchases sharply and ended a four-month run of inventory growth as stock levels were unchanged.
Lead times on inputs continued to shorten, but the rate of improvement slowed from June and was only mild. Regarding future output, only 14% of surveyed Kenyan firms forecast growth over the next 12 months, leading to a slight weakening in the overall level of confidence.