Business conditions dip at softer pace in March

Business conditions declined at a softer pace in March as output and new orders dropped for the second month running.

According to the Stanbic Bank Kenya Purchasing Managers Index (PMI), the decline lessened from the initial downturn in February, even as businesses signaled renewed uplifts in employment and purchasing.

Mulalo Madula, an economist at Standard Bank noteed that output and new orders fell particularly in wholesale and retail sectors on the back of lower demand as price pressures and cash flow problems accelerated. “Although the pace of deterioration has slowed, Kenya saw business conditions continue to decline in March, as the PMI remained below 50,” he said.

Monthly contraction

At 49.2 in March, the headline index signalled a slight deterioration in business conditions at the end of the first quarter of the year, and the second monthly contraction in a row. However, the rate of deterioration lessened notably from February, when the index dropped to a six-month low of 46.6.

Readings above 50 signal an improvement in business conditions on the previous month, while readings below 50 show a deterioration.

“Overall, confidence plunged to its lowest level in three months, but businesses remained optimistic about Kenya’s business environment, especially in the manufacturing sector,” Madula said.

Nevertheless, inflationary pressures underlying the deterioration in economic conditions remained sharp, with around 30 per cent of businesses reporting an uptick in purchase prices linked to problems of accessing the US dollars and a worsening of exchange rates.

The managers interviewed for the report indicated that increase in costs spiked output price inflation to a five-month high, while imported goods shortages led firms to seek safety stockpiles.

While many respondents continued to see demand fall due to high prices and a lack of money in circulation, others saw a recovery in customer orders, particularly from abroad.

Sector data signalled that the latest contractions in output and sales were centred on wholesale and retail companies. By contrast, manufacturing, agriculture, construction and services recorded expansions in both metrics.

Build inventories

The data also signalled renewed rises in employment and purchasing in March, although growth in both cases was only mild, with the rise in purchasing reflecting efforts to build inventories of inputs, as firms reported that difficulties accessing the US dollars had led to a shortage of commodities and longer delivery times.