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Kenya’s private sector activity fell in June, undermined by slowing business in the services, wholesale and retail sectors amid heightened inflationary pressures and a depreciating shilling, a survey has revealed.

Stanbic Bank Kenya Purchasing Managers Index (PMI) fell to 47.8 during the period from 49.4 the previous month.

Readings above 50 signal an improvement in business conditions on the previous month, while readings below 50 show a deterioration. The index has been below the 50 mark for the fifth month, signalling a contraction in activity.

According to the Purchasing Managers’ Index (PMI) an economic indicator that surveys purchasing managers at businesses, such as manufacturers, output and new orders in the industry declined at faster rates, while inflationary pressures remained elevated as the Kenyan shilling continued to depreciate.

The managers indicated that input prices rose at the fourth-fastest rate on record. However, a weak shilling supported exports, which grew further in June, while suppliers’ delivery times improved again as vendors became more competitive to retain business as demand for inputs fell.

Maulo Madula, an economist at Standard Bank said the main negative influences on the PMI in June came from new orders and output, which together accounted for 55 per cent of the weight of the headline index, both registering faster contractions and reversing slower falls in May.

“At the end of the second quarter, Kenya’s private sector signalled a further and deeper downturn in business activity,” she said.

Madula said output price inflation reached its highest level since October 22 as businesses tried to recover higher input costs, attributing the pressures behind input costs to rising fuel prices and the effect of a weaker shilling relative to the US dollar, factors that led to lack of client spending power.

“As a result, new orders decreased for the fifth consecutive month, and output followed suit with the service and wholesale and retail sectors bearing the brand of the slowdown,” she said.

In contrast to weaker total new orders, the economist said the level of export business rose for the fourth consecutive month, because of the weak shilling.

Additionally, employment increased for the fourth consecutive month, as companies expanded their operations in a bid to improve their services. The agriculture sector showed the biggest growth, followed by the manufacturing sector.

However, companies expressed fears that the Finance Bill 2023 (nown Act) could raise both the cost of doing business and that of living, a factor they said is likely to dampen growth.

Stifle growth

“In the medium term, growth could be robust but most of the Finance Bill 2023’s proposals could stifle growth in private investment and consumption, which would weigh on the economy,” the survey revealed.

The purchasing managers said they were more optimistic about the forthcoming 12 months, a sentiment that they linked to investment in new branches, marketing, entry into new export markets and new services.

Inflation eased in June to 7.9 per cent year-on-year from 8 per cent a month earlier, while the shilling which has hit repeated record lows since late 2021 was trading at Sh140.7 against the US dollar yesterday.