Stanbic Bank Kenya PMI - Output growth picks up in October 2021

Key findings

• Business activity and sales rise at stronger rates
• Input costs increase sharply
• Hiring growth slows as outlook remains relatively subdued

The Kenya PMIT ticked higher in October, as output growth strengthened for the first time in five months and new business continued to grow. However, there was also a further marked increase in input costs, while hiring growth weakened to a modest pace as firms continued to signal uncertainty surrounding the economic recovery from the 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.

At 51.4, up from 50.4 in September, the PMI posted its highest reading for five months in October. That said, the index signalled only a modest improvement in business conditions, and one that was slower than the series long-run trend.

New business volumes continued to rise at Kenyan firms, extending the current run of growth that began in May. Furthermore, the most recent increase was the fastest in five months, which panellists linked to greater customer spending as cash flow and economic conditions improved. There was a particularly robust rise in sales across services firms, but demand fell in the agriculture and construction sectors and was unchanged in manufacturing.

The upturn in new orders supported a further rise in output during October, and one that was stronger than in the previous month. Nevertheless, output struggled to keep up with demand, leading to a slight increase in outstanding work.

Employment levels were raised for the sixth month running as firms looked to boost overall capacity. Notably though, the rate of job creation slowed and was only modest, as businesses continued to project a relatively subdued outlook for future activity amid uncertainty over how the pandemic will impact spending decisions.

More positively, October data pointed to a solid and faster increase in purchasing activity at Kenyan firms, linked to efforts to expand stock levels. Delivery times continued to improve, albeit to a lesser extent than in September due to mentions of shortages at some vendors.

Weak material supply, higher VAT and rising energy prices combined to push total input costs higher in October, with the latest mark-up the quickest since July. Staff salaries were also up, but only slightly overall.

To protect profit margins, Kenyan firms often passed additional costs through to their clients. Consequently, output charges rose solidly and at the fastest rate since the beginning of the year.

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