Stanbic Bank Kenya PMI - Business activity rises sharply in January
Economic conditions in the Kenyan private sector improved at a solid pace in January, driven by sharp increases in output and new business. Workforce numbers rose at a faster rate, while firms also expressed stronger optimism towards the next year of activity. Inflationary pressures intensified, however, as VAT returned to the level seen before the coronavirus disease 2019 (COVID- 19) pandemic.
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 PMI posted 53.2 in January, up from 51.4 in December to the highest reading for three months. The index pointed to a solid improvement in the health of the private sector economy, and the seventh consecutive month of growth since the COVID-19 outbreak.
Output and new orders both rose sharply in the new year, with growth of each quickening to the fastest since last October. Firms highlighted that the reopening of businesses and improved cash flow in the economy helped to generate higher customer spending. Export sales also continued to rise, although the upturn slowed to the weakest for seven months.
Rising levels of new work led to a solid increase in backlogs during January, encouraging a number of businesses to hire additional staff. Consequently, employment rose at a solid rate that was one of the fastest seen over the past year.
Input cost inflation accelerated in January, mainly due to a hike in VAT to 16% that led many suppliers to increase their prices. Raw material shortages and rising demand for inputs also contributed to an uptick in purchase costs, which rose at the quickest rate since September 2018. Firms often passed on higher costs to clients, with output charges rising at the strongest rate in a year-and-a-half.
Expansions in supplier capacity, and stronger competition among vendors, led to a further shortening of overall delivery times in January. The rate of improvement picked up to a three-month high. Rising purchasing activity, meanwhile, supported a solid increase in inventories, albeit the softest recorded in seven months.
Business expectations for the year ahead improved sharply at the start of 2021, to the strongest since last June. Companies were hopeful of carrying out expansion plans and investing in new capital, amid optimism that the COVID-19 pandemic will end. Over one-in-three surveyed firms predicted a rise in output by January 2022, with the rest giving a neutral outlook.
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