Stanbic Bank PMI - Growth softens to eight-month low in February
Business conditions in Kenya's private sector economy continued to improve in February, according to the latest survey data, although the rate of expansion slowed to the weakest for eight months. Output rose only marginally amid a more modest increase in new order volumes, as businesses reported that weak cash flow limited household and client spending.
Purchase prices rose steeply, led by a hike in VAT at the start of the year. Input cost inflation eased though, partly due to firms lowering wages to support overall workforce numbers.
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 dropped to 50.9 in February, down from 53.2 in January and signalling the weakest rate of improvement in the current eight-month run of expansion following the initial impact of the coronavirus disease 2019 (COVID-19) pandemic.
Output and new orders continued to rise midway through the first quarter, but rates of expansion softened with the former indicating the weakest upturn in business activity for eight months. Slower sales growth was often related by panellists to a lack of cash flow in some parts of the economy, leading to reduced customer spending and travel. New orders from foreign clients grew only modestly, and to the least extent since last June.
Consequently, firms raised purchasing activity at the slowest rate for six months, leading to a more modest uptick in inventory levels. High competition among vendors drove an improvement in delivery times, although some panellists reported delays on imported goods due to global supply shortages.
Employment numbers increased only marginally in February, with firms also seeing a softer rise in outstanding work. Moreover, to maintain current staff levels, some businesses cut workers' salaries, leading to the fastest drop in average wage costs for seven months.
Nevertheless, cost burdens were driven higher by another sharp increase in purchase prices. Respondents largely blamed the uptick on a recent hike in VAT, exacerbated by material shortages and higher fuel prices. Output charges rose for the second straight month in order to maintain firms’ margins.
Business expectations for the year ahead dipped slightly in February, but remained above the level seen through the second half of 2020. About a third of surveyed firms expect output to rise, linked to plans for expansion and increased marketing activity.
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