Stanbic Bank Kenya PMI - Kenyan economy rebounds in May as restrictions ease

Business conditions in the Kenyan private sector recovered partially in May, after tightened measures on travel and curfew led to a steep contraction in April. New business grew at the fastest rate in seven months, while output and employment both rose to the strongest degrees since January. Price margins were squeezed for the third month running as output charges rose at a slower rate than input prices, despite the latter increasing at the softest pace since February.

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.

After falling sharply below the 50.0 value in April, the headline PMI was back in growth territory in May. At 52.5, the index was up 11 points to its highest in four months, albeit signalling only a moderate improvement in operating conditions. Notably, the latest expansion was softer than the contraction recorded in April, suggesting that overall economic performance remained below the level seen before restrictions were reimposed.

Four sub-indices of the PMI rose above the 50.0 neutral mark in May, namely output, new orders, employment and stocks of purchases. Firstly, output grew at a solid rate as firms reported an easing of curfew hours and travel restrictions between counties. This loosening of measures also supported a sharp rise in new orders that was the quickest since October 2020. There was notable strength on the exports side, as orders from foreign clients increased markedly.

Job creation returned in the latest survey period as a result of a strong increase in workloads. This contributed to a third consecutive fall in backlogs of work, albeit one that was only fractional.

Input purchasing also moved into growth territory in May, although spare capacity gained from the previous month helped suppliers to deliver inputs more quickly. Despite this, stock levels expanded only modestly.

Prices data indicated a further squeezing of profit margins. Despite some businesses recording higher charges, the overall rate of output charge inflation remained slower than that of input prices. Respondents often linked a rise in purchase prices to increased transport fees, which in turn was attributed to higher fuel costs. Staff expenses rose for the first time since October 2020, but overall cost inflation slowed to a three-month low.

Business expansion plans drove another robust forecast for the next 12 months of output in May. Confidence improved to a three-month high, with around 27% of companies expecting an overall upturn.

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