Stanbic Bank Kenya PMI - Business conditions improve at weaker rate in June

Key Findings

• Output and new order growth slip from May
• Marginal rise in employment as backlogs creep up
• Outlook nears record low

The latest PMI survey data indicated a second consecutive monthly improvement in the health of the Kenyan private sector in June. The upturn was supported by further rises in output and new orders, although rates of growth slipped from May. Hiring activity continued as firms faced a renewed increase in backlogs, while there were additional efforts to build inventories ahead of predicted sales growth. However, concerns about further COVID-19 restrictions meant that the business outlook slipped to the second-weakest in the series 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 headline PMI fell from 52.5 in May to 51.0 in June, indicating a sustained, but weaker, expansion in the Kenyan private sector economy. Four of the five subcomponents of the PMI gave a negative directional influence, the exception being the Stocks of Purchases Index which ticked higher.

Output at Kenyan companies continued to rise at the end of the second quarter, but only at a modest pace. Survey panellists found that an improvement in customer demand and greater cash flow supported overall growth.

New orders also increased in June, but to a lesser degree than in May. A similar trend was seen for export sales, as firms noted a rise in demand from European clients.

A sustained upturn in new orders provided fresh capacity pressures, leading to the first increase in outstanding work in four months. Firms subsequently added to their workforce numbers, although the rate of job creation slowed from the previous month and was marginal.

Purchasing of inputs also expanded during June, with firms often reporting efforts to build inventories in anticipation of higher new order inflows. Meanwhile, suppliers’ delivery times were shortened to the greatest extent since last October.

Rising fuel costs and increased raw material demand drove another solid increase in purchase prices in June. Firms also saw a rise in staff costs for the second month running, albeit only a marginal one. Overall input cost inflation was unchanged from May, leading businesses to raise their selling charges in a bid to sustain profit margins.

Finally, the outlook for business activity in 12 months' time worsened in June and was almost level with the series nadir recorded in April. Despite expansion plans bolstering confidence, concerns about future COVID-19 restrictions drove widespread hesitancy, with nearly fourfifths  of respondents expecting no change in output.

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