Kenya’s services sector shrunk in April on rising consumer inflation and the general living costs, a private-sector survey shows. For the first time in three months, S&P Global Kenya Purchasing Managers’ Index (PMI) dropped to 49.5 from 50.5 a month earlier, in the latest sign of a mounting economic ding-dong.

The 50.0 mark separates growth in activity from contractions and readings below 50 show a deterioration.

Released Friday, the survey further shows that business conditions by Kenyan companies deteriorated in the month under review, as firms experienced supply shortfalls for a number of items and a near-record rise in input prices, “The decline in operating conditions was underlined by a renewed fall in new order volumes in April.,” it said.

“The decrease was often related to clients reducing their spending due to marked increases in selling prices, fuel costs and other living expenses,” added the report in its analysis.

Overall the survey panelist, found that wage costs at Kenyan businesses rose for a second consecutive month during the month, with the rate of inflation picking up to the highest since June 2021 even though it remained marginal.

Reduce backlogs

Indeed, consumer inflation jumped to a six-month high of 6.5 per cent in the period under review, up from 5.6 per cent in March. The survey noted that Kenyan businesses raised their workforce numbers again during the month, with the rate of hiring accelerating slightly compared to the previous month. However, it remained modest and slower, which according to latest findings show rising workloads in a bid to reduce backlogs, underpinned by job creation in April.

Additionally, job numbers rose in four of the five broad sectors covered by the survey, with construction in particular the only area to record a decrease. 

And while there were some reports of firms increasing salaries in line with higher living costs, the vast majority of respondents saw no change in their labor expenses.

Kenyan companies were also able to maintain a stable level of incomplete work at the start of the second quarter of the year, after signaling increases in each of the previous two months, according to panel members, who noted that lower intakes of new work and increased staffing led to spare capacity, even though this was offset by delays in the delivery of goods.

“Output prices rose at the fastest rate on record as firms passed on the highest input inflation recorded over the past 8 years. In response to the lower demand, firms reduced their output at the fastest rate since the last round of lockdowns in April 2021,” commented Kuria Kamau, Fixed Income and Currency Strategist at Stanbic Bank.

Kenya’s economy was hard hit by the pandemic for larger parts of 2020, affecting incomes and jobs, with an April 2021 Bretton Woods institution estimating that Kenya’s gross domestic ptoduct (GDP) contracted by 1 per cent last year.

Movement restrictions

Up until July last when the government lifted all movement restrictions, for most part of 2020, the economy was exposed through the dampening effects on domestic activity of the containment measures and behavioral responses, and through trade and travel disruption, affecting key foreign currency earners such as tourism and cut flowers.

According to Economic Survey 2022, Kenya’s economy rebounded to grow 7.5 per cent in 2021 compared to a contraction of 0.3 percent a year earlier.