Private sector activity dips sharply in June, PMI shows
Kenyan private sector activity declined sharply in June, with the Stanbic Bank Kenya Purchasing Managers Index (PMI) falling to 47.2 from 51.8 in May, signalling a solid deterioration in the health of the Kenyan private sector economy.
The downturn was the sharpest recorded in seven months, which contrasted notably with the PMI’s 16-month high just one month prior.
According to Christopher Legilisho, Economist at Standard Bank, after registering a solid expansion midway through the quarter, private sector output dropped markedly in June, in line with a renewed and steep fall in new business intakes.
“In June, momentum in private sector activity declined, reflecting several concerns, top of the list being the proposed increase in taxes via the (now withdrawn) Finance Bill 2024, and the widespread protests in response, with unrest restraining output and new business because customers delayed spending decisions in the face of such uncertainty,” he said.
Legilisho said after two months of increased purchasing activity by firms, there was a dip in purchasing quantities and inventories because of reduced sales in several sectors, namely construction, agriculture, wholesale and retail.
Increased taxes
According to the survey, input prices, purchase prices and output prices recorded a mild increase in anticipation of the increased taxes proposed in the Finance Bill 2024. However, a stronger exchange rate and lower pump prices managed to restrain costs.
The survey was conducted between June 12 and 26, with the majority of responses received before the unrest on 25.
According to panel members, tough economic conditions brought on by the cost-of-living crisis, as well as protests surrounding the country’s finance bill, hurt sales volumes.
The downturn was partially softened by a rise in new orders across the manufacturing sector, which was the only monitored industry to register growth in June.
Drop in sales tempered efforts to expand capacity at Kenyan companies last month. Purchasing activity decreased for the first time in three months, leading to a fresh reduction in firms’ inventories of inputs. However, the pace of stock depletion was only modest. Employment numbers continued to rise, but the increase was the weakest seen so far in 2024.
“Despite the recent upheaval, it was notable that job creation improved for a sixth month running as firms increased capacity, although business optimism for the year ahead remains fragile. Input prices in the Kenyan economy rose for the first time in three months in June, following a near-record decrease in the previous survey period,” the report says.
Higher taxation on products was commonly noted by respondents as driving up costs, offsetting further reports of reduced fuel prices and a positive impact on import prices from stronger exchange rates.
Notably though, the rate of input price inflation was modest and much softer than typically seen over the past four years.
According to the survey, cost increases during the period under review were centred on the wholesale and retail, agriculture and services sectors, comparing with falls in manufacturing and construction.
With cost pressures relatively mild, Kenyan firms posted only a slight rise in their output prices in June. Business expectations towards future activity meanwhile slipped to a four-month low, as economic challenges led firms to show less optimism towards their sales and output forecasts.
Economic challenge
Domestic economic challenges led businesses to show less positivity towards the outlook for activity in the coming year.
The Future Output Index slid to a four-month low during June and was among its weakest sincethe survey began (in 2014). On average, the agriculture, manufacturing, wholesale and retail and services categories expect output to rise, whereas construction firms were neutral regarding their prospects.
