December survey completes strong year of growth for Kenyan

04 Jan 2019

Kenyan private sector businesses enjoyed a solid improvement in operating conditions during December. Output and new orders recorded further sharp increases, with the latter growing at a faster rate than in November. Employment growth also improved, while input buying expanded sharply. At the same time, cost inflation weakened to the least marked in five months, with output charges also seeing a softer increase.

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

“The Stanbic PMI closed the year strongly, recording the highest average since 2014. We believe that GDP growth remains on track to test 6.0% y/y in 2018 and furthermore the good weather conditions in Q4:18 will have underpinned the agrarian sector as well. Moreover, firms scrambled to clear backlogs of stock in December which subsequently boosted output, while surprisingly costs remained steady for firms during the festive season as well.”

The main findings of the December survey were as follows:

At 53.6 in December, the headline PMI rose from November’s reading of 53.1, signalling a solid advancement in Kenya’s private sector economy. The latest survey confirmed a full calendar year of growth, and one where the average PMI reading was the strongest since 2014.

New orders at Kenyan businesses continued to rise sharply, with the pace of increase slightly faster than in November. Similarly, export orders expanded at a substantial rate, indicating that firms were buoyed by an influx of both domestic and overseas demand.

Consequently, firms raised activity levels at a marked rate, although the latest increase was the softest in three months. Moreover, firms were able to raise activity sufficiently to lead to the first fall in outstanding business Confidential | Copyright © 2019 IHS Markit Ltd Page 2 of 3



since July. Panellists reported a concerted effort to clear backlogs.

Staffing levels recorded a modest rise during December. Employment growth was driven by an increase in casual workers in line with the rise in new orders. Alongside this, supply chains maintained a strong efficiency, with delivery times decreasing at a sharp rate.

Purchasing activity grew substantially during December, due to the further expansion in new orders. However, the rate at which purchases increased was the second-weakest seen over the course of 2018. Likewise, stocks of purchases rose at a slower, but still marked, pace.

On the price front, Kenyan private sector firms reported a softer rise in overall input prices in December. In fact, the pace of increase was at a five-month low, with only around 14% of panellists seeing costs increase.

Where costs did rise, firms pointed to higher transportation and food costs, as well as a sharper increase in salaries. Staff costs rose as firms reported dividing out profits earned from the recent sales growth.

Finally, companies responded with a softer markup in output prices during December, as the respective index fell to its lowest since August. Despite the increase in demand, respondents found that they were able to ease price inflation at the end of the year.

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