Output expectations soar to record high in June

03 Jul 2019

 

 Embargoed until 1030 EAT (0730 UTC) 3 July 2019

 

Stanbic Bank Kenya PMI™

 

 Output expectations soar to record high in June

 Key Findungs:

  • Business outlook overwhelmingly positive
  • Output and new orders increase sharply
  • Employment growth reaches 30-month high

June survey data pointed to a marked improvement in the health of Kenya's private sector, as businesses drove up activity in line with an accelerated rate of growth in new business. Firms also recorded a sharp increase in workforce numbers, while expectations for output over the coming year improved to the highest in the survey history.

 

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 index posted at 54.3 in June, climbing up 3 index points from 51.3 in May to the highest reading in ten months. Overall, this signalled a steep improvement in operating conditions at Kenyan private sector businesses. Positive movements were recorded in all five sub-indices contributing to the headline figure.

 

Firms enjoyed a sharp increase in new orders during the month. The rise was reportedly driven by demand from both domestic and external markets, with a number of panellists noting a widening of their client base. Some also mentioned an easing of cash flow issues over the past few months. Overall, sales grew at the fastest rate in the year so far. As such, there was a strong expansion in output levels in June, with the rate of growth increasing markedly from May to a five-month high. This fed through into a solid increase in staff numbers that was the quickest seen in two-and-a-half years.

 

Furthermore, business confidence for future output strengthened considerably in June, with latest data signalling the highest level of optimism in the survey's history. Alongside the sharp increase in new orders, firms stated that new government spending plans should help business growth over the year. Many panellists also reportedly intend to open new branches in the near future.

 

Meanwhile, increased output growth during June led Kenyan companies to raise input purchases. The rate of expansion was the quickest recorded since last November, leading to a sharp rise in stock levels. Demand for inputs also placed extra pressure on suppliers. While delivery times shortened overall, they did so at the softest pace in over one-and-a-half years. At the same time, purchasing costs rose at the sharpest rate in eight months. Firms highlighted a number of inflationary effects, such as higher taxes, fuel hikes and increased input demand. Wages also grew, but at only a moderate rate.

 

As a result, overall input costs continued to rise steeply, forcing a number of companies to raise their output charges in order to maintain profit levels. That said, the full mark-up in selling prices was only modest.

 

Jibran Qureishi, Regional Economist E.A at Stanbic Bank commented: "The Stanbic Bank PMI recovered to a ten month high in June, reflecting the upbeat sentiment from private sector firms mainly due to the government releasing payments owed to both contractors and suppliers as well VAT refunds. Furthermore, the pledge by the President at the Madaraka celebrations to ensure that containers are cleared quicker at the port while the commitment to clear private sector arrears in the FY2019/20 outlined in the budget speech, should underpin economic activity if implemented in the second half of 2019."


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