Stanbic Bank Kenya PMI Report for December 2023
Inflationary pressures soften markedly in December
Key findings
- Input prices and output charges rise at much softer rates
- New orders decrease only slightly
- Declines in output and employment ease
The latest Kenya PMI® findings signalled a strong move towards stability in private sector business conditions in December, helped by a considerable cooling of inflationary pressures. Rises in input costs and output prices were the softest since April, having slowed markedly from record highs in October. Subsequently, many companies saw a recovery in new work amid improved client spending, offsetting the impact of cost-ofliving pressures. As such, new orders, output and employment all declined to lesser degrees.
The headline figure derived from the survey is the Purchasing Managers’ IndexTM (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 moved three points higher in December, up to 48.8 from 45.8 in November, to signal a modest and softer decline in operating conditions across Kenya. Private sector conditions have now deteriorated for four months running, although the latest decline was the weakest in this sequence.
Output levels at Kenyan companies fell to a lesser extent at the end of the year, as firms highlighted a partial rebound in demand conditions. Similarly, new order inflows dropped at the softest pace in four months and only slightly. According to anecdotal evidence, customer turnout and purchasing power improved amid a softening in inflationary pressures, especially across the services sector. Firms were also supported by the sharpest increase in new export business in exactly two years.
On the flip side, contractions in output and new orders remained sharp in the manufacturing and construction sectors, as firms continued to signal cost-of-living pressures and weak demand conditions.
December survey data also highlighted a marked slowdown in input cost inflation across the private sector. After reaching a survey-record peak in October, the rate of inflation slowed for the second month running and by the greatest degree ever noted. While firms indicated that currency weakness and tax burdens continued to lift overall input costs, the settling of fuel prices somewhat alleviated the rise.
In a similar fashion, average output charges rose to a much softer degree in December, albeit remaining sharp and faster than the long-run average. Sector data showed a cooling of inflationary pressures in all segments except agriculture, with manufacturers even reducing factory gate prices
With cost pressures easing and the downturn in sales softening, purchasing activity at Kenyan firms was broadly stable in December, helping businesses to raise their inventories and deplete backlogs of work. Lead times on purchased items shortened for the third month running.
The drop in employment levels was also tempered at the end of the year, with the latest data indicating the softest fall since September. Agriculture was the only sector to see a rise in staffing.
Nonetheless, Kenyan businesses were less optimistic about future activity in December, with the degree of confidence slipping to a seven-month low. Expectations were also among the lowest seen on record, with just 11% of panellists predicting growth over 2024.
Comment
Christopher Legilisho, Economist at Standard Bank commented:
“The Purchasing Managers Index (PMI) improved in December, despite still difficult business conditions for the private sector. Service sector companies reported an uplift in activity while declines persisted particularly in manufacturing and construction sectors, as firms continued to signal cost-of-living pressures and weak demand conditions. That said, inflationary pressures are noted to have eased, amid better cash flow prospects for clients. The rate of job declines also softened compared to previous months with the agricultural sector seeing an increase in hiring.
“Furthermore, Kenyan businesses reported elevated inventories, with a slowdown in price increases in December. Firms indicated that input costs and purchase cost pressures were primarily due to higher taxes among other factors. There was notable reprieve from fuel and transport costs that moderated during the month. Still, business expectations for the year ahead remain quite weak based on the survey results from respondents.”