Business conditions deteriorate at a slower pace

2017-12-05 00:00:00.0

Data collected 13-28 November

• PMI rises to 42.8 but remains in contraction territory

• Sharp, but slower, falls in output and new orders

• Job shedding quickens to the fastest in the survey’s history

Political instability in Kenya contributed to the seventh consecutive deterioration in business conditions in November. Although at a slower pace, the deterioration in the health of the private sector in November remained marked. Rates of decline in both output and new orders eased from the survey records in October, but the rates of contraction remained sharp. In response to lower output requirements, firms reduced their staffing levels during November. On the price front, cost pressures intensified further during the latest survey period, while firms were unable to fully pass on higher cost burdens to price-sensitive customers.

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.

The main findings of the November survey were as follows:

Although the seasonally adjusted PMI rose from a survey-record low of 34.4 in October to 42.8 in November, the latest reading signalled the Kenyan private sector economy was entrenched in contraction territory. The headline PMI registered below the neutral 50.0 threshold for a seventh month in succession.

Output at Kenyan private sector firms decreased for the seventh consecutive month during November. Despite easing from October’s recent survey-record decline, the rate of contraction remained sharp overall. Panellists commented on political instability and subdued demand conditions.

Mirroring the trend for business activity, new orders fell during November. Although easing to the weakest in four months, the rate of decline was sharp. According to anecdotal evidence, a lower customer turnout and weak underlying demand conditions emanated from a negative political climate.

New export orders declined for the fourth consecutive month, albeit at a marginal pace. Respondents associated the decline with reduced demand from key international markets.

Purchasing activity fell for the fourth successive month in November. Subsequently, pre-production inventories held by Kenyan private sector firms decreased.

Reflective of ongoing spare capacity, job shedding quickened to the fastest in the survey so far. A combination of lower turnover, insufficient funds and lower output requirements reportedly prompted firms to reduce their staffing levels.

On the price front, firms continued to face higher overall input prices in November. Furthermore, input price inflation accelerated to the fastest since October 2015. Purchase prices increased but staff costs declined. Meanwhile, firms reportedly reduced their average selling prices as part of attempts to stimulate demand. That said, output charges decreased only marginally.

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