Stanbic Bank Kenya PMI for June 2023
Kenyan private sector economy contracts at faster rate in June
Key findings
Key findings
- Sharper declines in output and new orders
- High inflation continues to limit purchasing power
- Weak demand leads to better supplier performance
The latest Stanbic Bank Kenya PMI™ data signalled a stronger downturn in the Kenyan private sector midway through 2023. Output and new orders both declined at faster rates, while inflationary pressures remained elevated as the Kenyan shilling continued to depreciate. Input prices rose at the fourth-fastest rate on record. The currency weakness did, however, support exports, which grew further in June. Suppliers' delivery times improved again as vendors became more competitive to retain business as demand for inputs fell.
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 registered below the 50.0 neutral mark for the fifth month running in June. Falling to 47.8, from 49.4 in May, the latest figure signalled a sharper deterioration in business conditions, albeit one not as severe as those seen in February and April. On a quarterly basis, the second quarter was the weakest since the third quarter of 2022.
The main negative influences on the PMI in June came from new orders and output, which together account for 55% of the weight of the headline index. Both registered faster contractions in June, reversing slower falls in May. Faster suppliers' delivery times weighed on the headline figure to the greatest degree since September 2022, while employment and stocks of purchases both exerted weaker positive influences in June.
The volume of new business received by private sector companies fell for the fifth month running in June. Firms widely reported a lack of purchasing power among customers due to high inflation and cash shortages. The overall fall wholly reflected weak domestic markets, as new export business rose for the fourth month running. Moreover, the weak shilling translated into the fastest growth in export demand since December 2021.
The ongoing downturn in demand was reflected in a fifth successive contraction in output in June, and at a faster rate. The services and wholesale & retail sectors registered the steepest declines in activity.
Price pressures remained severe in June, with average input prices rising at the fourth-steepest pace in the survey history on the back of May's record. Anecdotal evidence widely linked cost pressures to fuel and the impact of the weak shilling-US dollar exchange rate. Soaring costs led firms to raise their prices charged for goods and services at the fastest rate in eight months, and one of the highest on record.
Purchasing activity was cut in June as firms adjusted to weaker inflows of new orders. This contributed to a further reduction in average lead times, with suppliers competing for business. Input inventories rose for the fourth month running.
More positively, employment rose further in June as firms remained optimistic on growth. The 12-month outlook for activity improved on April and May, but remained weak in the context of historical survey data.
Comment
Mulalo Madula, Economist at Standard Bank commented:
“At the end of the second quarter, Kenya's private sector signalled a further and deeper downturn of business activity. According to the survey, output price inflation reached its highest level since October 22 as businesses tried to recover higher input costs. The pressure behind input cost was largely attributed to rising fuel prices and the effect of the weaker KES relative to the USD. As a result, new orders decreased for the fifth consecutive month, and output followed suit with the services and wholesale and retail sectors bearing the brunt of the slowdown.
“Positively, new export business has remained in expansionary territory for the fourth consecutive month thanks to a weaker KES. Additionally, employment has been increasing, with the agriculture sector showing the biggest growth followed by manufacturing.
“In the medium term, growth could be robust, but most of the Finance Bill 2023's proposals (which could raise both the cost of doing business and the cost of living) could stifle growth in private investment and consumption, which would weigh on the economy. Notably, firms have an improved outlook for the next 12 months, albeit remaining below average.”