Stanbic Bank Kenya PMI - Steeper downturn in economic conditions in June

Key findings

• Output and new orders fall further
• Selling prices rise at record pace
• Employment and purchasing drop fractionally

The Kenya PMI fell further into negative territory in June, as output and new orders continued to decline amid rising price pressures. Input costs increased at a severe rate, driven by higher fuel prices, supply shortages and a strengthening US dollar, leading to a record uptick in firms' selling charges. With demand falling, companies reported slight reductions in their employment and purchases.

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 posted below the 50.0 neutral mark for the third successive month in June, falling to 46.8 from 48.2 in May. The reading was the lowest seen since April 2021 and signalled a solid decline in the health of the Kenyan private sector.

The downturn was led by further contractions in both output and new orders at the end of the second quarter. In both cases, rates of decrease quickened from May. Firms commented that rising price pressures had weighed on client demand, while weaker cash flow and the upcoming elections were also noted as contributing factors.

The downturn in sales was largely concentrated on the manufacturing, construction and wholesale & retail sectors in June. By contrast, services firms posted a marginal rise in new business.

Meanwhile, inflationary pressures remained marked at Kenyan companies in June, often reflecting a surge in fuel prices due to the Russia-Ukraine war. A lack of availability of other inputs, a stronger US dollar, higher taxation and increased wages also weighed on business costs, which rose at one of the fastest rates in the series history.

Kenyan firms widely passed higher costs on to their customers in order to protect profit margins. Indeed, output charges rose at a survey-record pace in June.

Weaker client orders led to a further slight reduction in purchasing activity in June, although inventories continued to rise due to stockpiling efforts. At the same time, staffing capacity was down fractionally, leading to a slight increase in backlogs of work.

Kenyan firms meanwhile saw an improvement in average lead times, but one that was only marginal overall. Efforts by vendors to increase their activity were sometimes offset by input shortages.

Finally, expectations for future activity improved for the first time in four months during June, after reaching a record low in May. That said, optimism remained weaker than in any month prior to April amid concerns about the impact of inflation in the economy.

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