Kenya’s Private Sector Activity shrunk in June as a result of rising inflation and a rapidly weakening Kenya Shilling against the greenback, the increasing prices of raw materials and slowing consumer demand.
This is according to the June 2023 Stanbic Kenya’s Purchasing Managers (PMI) index which declined to 47.8 points in June from 49.4 points in May 2023, indicating a decline in business conditions, although not as severe as those seen in February and April this year.
The latest data shows a stronger decline in activity in the Kenyan private sector in the month of June as input prices climbed at the fourth-fastest rate on record. The Kenya Shilling depreciation against the greenback, however, led to exporters earning more.
Purchasing Managers’ Index (PMI) readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration. The headline PMI registered below the 50.0 neutral mark for the fifth month running in June, falling to 47.8, from 49.4 in May 2023. On a quarterly basis, the second quarter was the weakest since the third quarter of 2022.
Kenya’s output price inflation hit new highs since October 2022
“At the end of the second quarter, Kenya’s private sector signaled a further and deeper downturn of business activity . Output price inflation reached its highest level since October 2022 as businesses tried to recover higher input costs. The pressure behind the increased cost of raw materials experienced by Kenya’s firms was largely attributed to rising fuel prices and the effect of the weaker Kenya Shilling relative to the US Dollar,” said Mulalo Madula, Economist at Standard Bank.
He warned that while growth could be robust, most of the Finance Bill 2023’s proposals-which are projected to hike both the cost of doing business and the cost of living, could put brakes on growth in private investment and consumption, dealing a fatal blow on the economy.
In June, there was a deeper decline in output and new orders as firms grappled with rising inflationary pressure which weakened demand.
The volume of new business received by private sector companies fell for the fifth month running in June. Firms widely reported a lack of purchasing power among customers due to high inflation and cash shortages.
Soaring costs led firms to raise their prices charged for goods and services at the fastest rate in eight months, and one of the highest on record.
Purchasing activity was cut in June as firms adjusted to weaker inflows of new orders. This contributed to a further reduction in average lead times, with suppliers competing for business.
ALSO READ: Kenya’s Firms Hit Hard by Weak Shilling, High Fuel Costs – May PMI Index
