Stanbic Bank Kenya PMI - New business growth picks up in August

Key Findings

• New orders rise at faster rate, but output growth slips to four-month low
• Cost inflationary pressures ease after spike in July
• Business confidence slips to near-record low

 Business conditions in the Kenyan private sector economy improved for a fourth straight month in August. Furthermore, the rate of growth picked up as firms saw a faster expansion in new business compared to July. Job creation also strengthened, but output rose at the slowest rate in four months and business confidence fell to a near-record low. After climbing sharply in July, the pace of input cost inflation eased in August, leading firms to increase their charges at the softest rate in 2021 so far.

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.

In August, the headline PMI picked up to 51.1 from 50.6 in July, to remain above the 50.0 neutral mark for the fourth month in a row. That said, the reading signalled only a marginal improvement in business conditions that was slower than the average seen since data collection began in 2014.

The improvement in the headline index was partially driven by an acceleration in new order growth in August. Sales rose in four of the five monitored sectors, but were unchanged among manufacturing firms. According to survey respondents, the recovery in market activity after the COVID-19 lockdown drove an improvement in cash flow and customer demand.

The rise in sales led companies to expand output for the fourth month running in August, though the rate of expansion slipped to the weakest recorded in this sequence. Despite higher activity, there was a further accumulation of backlogs of work, which in part encouraged companies to add to their workforces.

Purchasing of inputs rose at a quicker, but only modest, pace midway through the third quarter, as firms commented on the need to facilitate higher sales and add to their inventories. Strong competition among vendors continued to drive wait times for inputs down, although material shortages and road problems meant that the latest improvement was the slowest since April.

A recent increase in taxes on products and imported goods continued to push purchasing costs higher in August, but the rate of inflation cooled markedly from July. Notably, the rate of overall input price inflation softened to a sixmonth low. Consequently, fewer firms raised their output prices during the month, with the latest uptick the slowest recorded in 2021 so far.

Finally, the outlook for future activity slipped to almost the weakest in the series history over August, and was only slightly above April's record low. Reports of ongoing economic instability linked to the pandemic meant that only around one-in-five surveyed firms projected output to grow over the next 12 months.

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