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4 Oct 2023

Stanbic Bank Kenya PMI Report for September 2023

PMI returns to contraction territory as new orders decline

Key findings

  • Output and new orders fall, after marginal rises in August
  • Jobs and inventories cut for first time in seven months
  • Input cost pressures accelerate to secondhighest in near-decade survey history

The Stanbic Bank Kenya PMI slid back into negative territory at the end of the third quarter, as firms saw a sharp contraction in new orders following a brief respite in August. Elevated inflationary pressures and rising fuel bills acted to dampen client sales, whilst also leading to the second-fastest rise in input costs in the survey's near-decade history.
Businesses responded by reducing their output levels solidly during September, and made cuts to both employment and inventories for the first time in seven months. Selling charges were meanwhile raised sharply, as firms looked to pass costs through to customers.

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.
After signalling an upturn in operating conditions for the first time in seven months in August, the headline Kenya PMI returned to contraction territory in September. The index dropped from 50.6 to 47.8, indicating a moderate deterioration in the private sector economy.

Output and new order volumes both declined for the seventh time in eight months over the course of September. As seen in recent months, survey participants largely attributed the contractions to rapid price increases, which led to both intense cost pressures and a drop in customer demand. Declines in output and sales followed fractional rises in August which were largely driven by an abating of political demonstrations.

Detailed sector data pointed to a considerable downturn in manufacturing output, alongside contractions in services, wholesale & retail and construction. Bucking this trend, the agriculture sector saw output and new orders expand, although rates of growth had softened from earlier in the year.

Kenyan firms meanwhile reported another marked rise in input prices in September, with the rate of inflation even accelerating to the second-highest on record. Anecdotal evidence indicated that currency weakness and higher fuel bills were mainly behind the rise. Output charges were raised sharply accordingly, albeit to a slightly lesser degree than August's 14-month high.

Demand weakness led to a renewed drop in firms' purchasing activity during September, resulting in the first decrease in stock levels for seven months. The fall in inventories also came amid a slight lengthening of delivery times, as price pressures resulted in cash flow issues at some vendors.

Likewise, Kenyan businesses reduced their headcounts for the first time since February, although the decrease was only slight overall. Firms signalled that lower new order inflows and a subsequent drop in backlogs had led them to cut labour capacity.

Looking ahead, firms maintained positive expectations for future activity in September, with optimism little-changed from August's five-month high albeit still weak in a historical context. Overall, 19% of survey respondents forecasted output to grow over the coming 12 months, with panel reports mainly linking this to expansion plans.


Christopher Legilisho, Economist at Standard Bank commented:

“The September Purchasing Managers Index (PMI) implies slower economic growth momentum after the positive performance in Aug. There was a notable contraction in output and new orders by the private sector in September, a scaling back of purchasing activity, and a slight drop in employment levels across all sectors other than agriculture.

“The decline in momentum is attributed to pump prices having been increased by the Energy and Petroleum Regulatory Authority (EPRA) by an average of KES23.80, and cost-of-living pressures arising from increased taxation as well as likely further tax increases, per the newly released medium-term revenue strategy. Furthermore, rising interest rates have been weighing on consumer demand, business levels, and expectations.

“Despite reduced output, manufacturing firms were the most optimistic about the outlook, whereas wholesale and retail firms were the least. Indeed, inflationary pressures persist, with both input and output prices still elevated - 42% of surveyed firms reported higher costs, often because of the deteriorating exchange rate.

“The September PMI paints a grim picture, and there may well be further near-term exchange rate depreciation despite recent positive reforms. However, we still foresee resilient GDP growth of 5.5-5.8%, led by agriculture.”

Stanbic Bank Kenya PMI Report

View the full PMI Report