Stanbic Bank PMI - PMI reaches 11-month high in January

Key findings 

• New business growth remains solid
• Cost pressures quicken amid tax rises
• Output expectations climb to highest since mid-2021

The Kenyan private sector recorded a further expansion at the beginning of the year, according to latest survey data, as rising demand levels continued to boost output and employment numbers. Most notably, the rate of growth in operating conditions picked up to the fastest since February 2022, leading to a strengthening of business confidence and increased stockpiling efforts.

More negatively, the latest data also pointed to a re-acceleration of inflationary pressures, as higher tax burdens and a further depreciation of the Kenyan shilling pushed purchase prices up sharply. Output charges rose at a faster rate accordingly, although inflation of both costs and charges remained well below the highs recorded in 2022.

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 index crept higher for the third consecutive month to 52.0 in January, from 51.6 in December, to signal a moderate improvement in the health of the private sector. The reading was the highest recorded in 11 months.

Central to the upturn was another solid increase in new business volumes, which rose at the quickest pace in just under a year. Firms that registered growth often linked this to greater marketing efforts. On the other hand, many businesses continued to struggle due to a lack of cash and weak household spending. For the second month running, construction was the only monitored sector to see a decline in sales, contrasting with rises in agriculture, manufacturing, services and wholesale & retail.

Kenyan firms subsequently increased their output levels in January, with the KENYA PMI PMI sa, >50 = improvement Aug ‘22 - Jan ‘23 Stanbic Bank Kenya PMI™ © 2023 S&P Global rate of expansion picking up to a four month high. Employment also rose, though only marginally as some firms struggled to keep staff due to a lack of money. Limited hiring led to a rise in outstanding business for the first time since last October.

Stronger demand growth provided a boost to business confidence in January. Optimism towards the 12-month outlook climbed to the highest level in a year-and-a-half, with firms often expecting to expand their operations amid higher sales. Efforts to build inventories in anticipation of higher new orders intensified, leading to a further increase in purchasing and a solid rise in stock levels.

High competition among vendors continued to drive a reduction in lead times, although some firms reported delays at ports, meaning the overall improvement was only modest.

Lastly, Kenyan firms saw a reacceleration of cost pressures in January, notably due to a faster rise in purchasing costs. A further depreciation in the shilling against the US dollar and increased taxes were often cited by panellists. Overall input costs rose to the greatest degree in three months, leading to a sharp and faster rise in selling charges.

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