Kenya’s Purchasing Managers’ Index (PMI) fell below the 50.0 no-change mark in February, indicating a decline in business conditions. The decline was driven by contractions in several key metrics, including output and new orders. The fall in sales was due to cost-of-living pressures and cash flow problems, which led to reduced customer spending. Currency weakness and increased tax burdens resulted in a sharp rise in input costs, which some firms passed on to customers. However, the rate of charge inflation was much softer than that of input prices.
PMI
The PMI is a measure of business conditions, with readings above 50.0 indicating an improvement and readings below 50.0 showing a deterioration. February’s PMI was 46.6, indicating a solid deterioration in operating conditions. Demand weakness was particularly clear, with companies reporting a sharp contraction in new order volumes due to high inflation and a lack of money in circulation. Firms also suffered from a marked fall in export sales.
The downturn in sales led Kenyan companies to make renewed cuts to activity, employment, and purchasing in February. Output fell sharply for the first time in four months, while input purchases fell for the first time since last August. While job losses were only mild overall, they were the strongest seen since April 2021.
Supply chain performance was broadly stable in February, but some firms experienced shortages of items such as timber and foodstuffs, as well as delays at ports. The disruption contributed to a fall in stocks of purchases.
Cost pressures accelerated to a notable pace during February, the highest for five months and among the quickest on record. Purchase price inflation was the key driver, according to panellists, amid reports of increased taxes and higher import costs as the exchange rate against the US dollar worsened. Output charges rose accordingly, although the rate of inflation was much softer than the increase in costs.
Business confidence towards future output strengthened markedly in February and was at its highest level in nearly three years, in contrast to the general trend.
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