Strong improvement in business conditions during October

05 Nov 2018

Strong improvement in business conditions during October

Data collected 12-29 October

  • Output and new order growth strengthens
  • Employment rises at quickest pace in six months
  • Cost pressures dip slightly but remain strong   

Kenyan private sector firms saw a stronger improvement in operating conditions in October, as latest survey data indicated solid growth in new business. In particular, export demand grew rapidly, while new projects and favourable weather conditions also boosted output. As a result, firms raised employment at the fastest rate in six months. Price pressures were slightly weaker than in September, but remained historically elevated overall.

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

“The onset of the short rain season which so far seems quite positive for the agrarian sector, could help GDP growth recover in the fourth quarter of 2018. The decline in the PMI in the third quarter, which we largely believe was due to wanning business confidence and enhanced anxiety owing to the new fiscal year tax measures that were introduced, weighed on economic activity. However, the latest increase in the PMI probably vindicates our decision to upgrade our 2018 GDP estimate to 5.8% y/y from 5.6% y/y previously as we expect a notable recovery in agricultural productivity in the fourth quarter.”

The main findings of the October survey were as follows:

At 54.0 in October, the latest PMI reading was up from 52.7 in September to signal a solid improvement in business conditions across Kenya’s private sector. Following September’s ten-month low, the latest figure suggested a return to the buoyant health seen earlier in the year.

Output continued to expand in October, with the rate of increase stronger than seen in September. On the other hand, it was marginally weaker than the average seen in the year-to-date.

Higher output levels were driven by a sharp increase in new business, as a number of companies reported new client wins. Both domestic and foreign demand picked up at a rapid pace, with new export orders rising at the joint-second quickest rate across the series history.

Concurrently, firms raised staffing levels at the strongest rate in six months. Panellists commented that job creation was mainly driven by temporary staff hires to meet current demand. Others took on additional staff in anticipation that output will grow in the future. Despite this, backlogs of work rose for the third successive month in October.

In order to meet higher demand, Kenyan private sector firms raised their purchasing activity at a faster pace in October. As a result, inventory levels also grew rapidly. Supplier delivery times shortened again, with firms commenting that greater competition had contributed to improved vendor performance.

Firms continued to raise selling prices in October. The rate of inflation was slightly slower than September’s 55-month high, albeit remaining sharp overall.

The slowdown partly reflected a marginal easing in the rate of input price inflation. Higher fuel taxes continued to exert pressure on purchasing costs, while food commodities and raw materials also experienced price rises in the latest survey period. Staff wages continued to grow, with the rate of inflation marginally quicker than seen in September.

Download full report from here. 


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