The Stanbic Purchasing Managers Index (PMI) for March declined to 49.7 from 51.3 in February, signalling a slight deterioration in operating conditions across the private sector, as orders and output levels contracted.
- The PMI reading was the lowest recorded for three months despite a stronger shilling.
- The index reversed course after showing the best upturn in over a year the previous month.
- Despite the overall decline, the PMI survey data provided some positive signals for Kenyan businesses.
“Private sector activity or PMI softened in March, offsetting the expansion during February. Output, new orders, and purchasing activity contracted due to fewer sales and less readily available cash flow. Firms noted that, despite lower inflation, a stronger shilling against the US$ in March, and increased marketing efforts, cost-of-living pressures are still subduing consumer demand,” said Christopher Legilisho, Economist at Standard Bank.
Among the positive signals is that firms continued to hire, albeit marginally, and build inventories because they foresee improved demand. Though off a low base, business expectations for 2024 recovered somewhat, led by wholesale and retail services firms; the index for future expectations had hit the weakest level on record in February. Additionally, input cost inflation slowed to its lowest level in over three years, amid a recovery in the exchange rate. But firms reduced their purchases of inputs, in line with weaker sales, at the quickest rate since last November.
Output contracted modestly, which PMI survey panelists attributed to lower new orders and cash flow constraints. The decline in new orders signaled by the survey was only fractional, however, as firms reported an easing of price pressures that supported customer spending. Price metrics pointed to a sustained slowdown in inflationary pressures at the end of the first quarter.
- Overall input costs rose at the slowest pace since February 2021, as a stronger exchange rate helped reduce import costs.
- Lower fuel prices were also cited, though some firms reported higher VAT payments.
- New orders fell only fractionally while Input and output price inflation continued to ease.
“Firms noted input, purchasing, and output price pressures as easing due to fuel prices declining further, and a stronger shilling against the US$ in March. Further, staff costs were stable for a second month in March,” said Legilisho.
Concurrently, firms managed to build their inventories for the second month running, driven by hopes of improving customer demand. Lower inflation trends boosted the demand outlook and supported expansion plans, with services and wholesale & retail firms being the most optimistic.
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