Stanbic Bank Kenya PMI - PMI drops to nine-month low as output and demand growth weaken

Key findings

• Output expands at weakest rate for nine months
• Modest upturns in new orders and employment
• Purchase prices continue to rise sharply

The Kenya PMI dropped to its lowest for nine months in March, as private sector companies reported only a marginal expansion in output and a slowdown in new order growth as cash flow issues limited customer spending. Employment numbers increased only modestly, while inventories rose at the slowest rate in the current growth sequence. Rising fuel prices meanwhile led to another sharp uptick in purchase prices, driving further pressure on firms' margins.

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 headline PMI fell for the second month running in March, from 50.9 in February to 50.6. The latest reading pointed to just a marginal improvement in the health of the private sector, and the weakest seen since the recovery in economic conditions from the initial impact of the coronavirus disease 2019 (COVID-19) pandemic began last July.

The two largest components of the PMI, the Output and New Orders indices, signalled a slowing in both activity and demand growth in March. Businesses highlighted that cash flow problems linked to the COVID-19 pandemic meant that households often limited spending to essential items. As a result, sales grew at the slowest rate since last November, with firms also seeing a loss of momentum from export orders. Subsequently, output increased at the slowest rate for nine months.

Private sector employment improved further during March, although here the rate of growth was only moderate. Rising workforce numbers helped to reduce backlogs of work, which fell for the first time since November last year.

Input purchases rose at a slower rate in March, despite efforts from some companies to build stocks in anticipation of future sales growth. Meanwhile, competition among vendors led to a solid reduction in delivery times, the most marked for five months.

Input cost inflation was driven higher by a steep uptick in purchase prices at the end of the first quarter. Businesses noted that an increase in local fuel prices often led suppliers to raise their charges. Output prices subsequently rose for the third straight month, but at a slower rate than input prices.

Finally, expectations for future activity slipped in March, and were the third-lowest seen in the series history. Notably, only around a quarter of survey respondents expect an increase in output over the coming year, linked to new branch openings and hopes of rising customer orders. Most remaining firms, meanwhile, predict no change in output amid worries of a further impact from COVID-19 on demand.

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