Kenya: PMI drops in March; conditions improve marginally

19 April 2022

Kenya PMI March

In March, the Kenya PMI fell to its lowest level in nine months, as private sector firms reported just a marginal increase in production and a halt in current order growth as cash flow problems restricted consumption and investment. Unemployment fell just a little, while inventory climbed at the weakest rate in the current development cycle. Meanwhile, rising gasoline costs caused another substantial increase in purchase prices, putting additional strain on business profits.

The survey's flagship number is the Purchasing Managers' IndexTM (PMITM). Levels over 50.0 indicate that business things have changed over the previous month, while readings below 50.0 indicate a worsening.

In March, the headline PMI declined for the second month in a row, from 50.9 in February to 50.6. The most recent measurement indicated just a minor improvement in the health of the private sector, and it was the worst witnessed since the economic recovery from the initial effect of the coronavirus disease 2019 (COVID-19) pandemic began last July.

The PMI's two most important components, the Output, and New Orders indexes indicated a decrease in both activity and demand growth in March. Businesses stated that due to cash flow issues caused by the COVID-19 epidemic, households frequently curtailed their expenditure on vital things. As a result, sales increased at the weakest rate since November of last year, with enterprises also seeing a lack of impetus from export orders. Following that, output climbed at the weakest rate in nine months.

Private-sector employment increased much further in March, though at a slow pace. Increasing labor numbers aided in the elimination of work-long delays, which decreased for the first time since November of last year.

In March, input purchases increased at a slower pace, despite efforts by some enterprises to stockpile in anticipation of future sales increases. Meanwhile, vendor competition resulted in the most significant drop in delivery times in five months.

After the first quarter, a sharp increase in purchase prices drove up input cost inflation. Businesses observed that an increase in local gasoline prices frequently caused suppliers to hike their fees. Following that, output prices climbed for the third month in a row, albeit at a slower rate than input prices.

Therefore, future activity forecasts fell in March, becoming the third lowest in the series' history. Notably, only around a quarter of poll respondents anticipate an increase in output over the next year, owing to new branch openings and anticipation for more consumer orders. Meanwhile, the majority of surviving enterprises foresee no change in output due to concerns about a further impact on demand from COVID-19.

The Stanbic Bank and S&P Global Purchasing Managers' Index (PMI) dipped to 50.5 in March, down from 52.9 in February. Despite the drop, the index remained over the 50-point mark, indicating that business conditions improved from the previous month, albeit at a slower pace.

The March downturn was caused by rising pricing pressures, which impacted customer demand and, as a result, slowed growth in new business. The Ukraine conflict has heightened supply worries, driving up commodity prices, particularly for petroleum, fertilizer, and food supplies. Furthermore, greater government taxes aided in the rise of input prices. In March, production fell again as a result of high inflation. Finally, firm sentiment reached its lowest point in the series' history. Nonetheless, firms raised their employment levels in a small manner.

Fixed investment is expected to grow 4.4 percent in 2022, unchanged from last month, and 4.5 percent in 2023, according to the Focus Economics Consensus Forecast panelists.

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