Kenya’s Purchasing Managers Index(PMI) rose to 51.4 in October, up from 50.4 in September 2021, the highest reading in five months, as output growth strengthened and new business continued to expand.
“In October, business activity expanded at the fastest pace in the past five months driven by higher demand and output. The improvement in domestic demand was driven by increased client spending primarily in wholesale and retail trade,” said Kuria Kamau, a Fixed Income and Currency Strategist at Stanbic Bank Kenya.
Export demand, meanwhile, rose at its fastest rate since August 2020 on account of increased demand from Europe where public health restrictions continue to be lifted.
To meet rising demand, firms increased their output following the normalisation of business spending as pandemic-related measures were eased.
“That said, output prices continued to rise as firms passed on their higher input costs. The one-year outlook remains relatively low with most firms expecting output to remain the same due to the lingering effects of the COVID-19 pandemic,” said Kamau.
Analysts forecast that while there was only a modest improvement in business conditions as shown by the PMI, the pace is likely to pick up in November when impact of lifting the night curfew and travel restrictions, which took effect on October 20th, 2021, sinks into the economy.
Although business activity picked up in October, the PMI index readings show that there was a rise in input costs, with firms still reluctant to hire due to uncertainty surrounding the economy’s recovery from the pandemic.
Lifting of containment measures is likely to trigger more activity in the alcohol and entertainment industry as well as in the public transport sector, especially as the end year festivities approach.
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.
In October, new business volumes continued to rise as Kenyan firms extended the current run of growth that began in May.
Furthermore, this recent increase in the PMI was the fastest in five months, which panellists linked to greater customer spending as cash flow and economic conditions improved.
There was a particularly robust rise in sales across services firms, but demand fell in the agriculture and construction sectors and was unchanged in manufacturing.
PMI readings on New Orders, Employment, Stock levels and Delivery times
October PMI readings show that the upturn in new orders supported a further rise in output during last month, and one that was stronger than in the previous month. Nevertheless, output struggled to keep up with demand, leading to a slight increase in outstanding work.
Employment levels were raised for the sixth month running as firms looked to boost overall capacity. Notably, though, the rate of job creation slowed and was only modest, as businesses continued to project a relatively subdued outlook for future activity amid uncertainty over how the pandemic will impact spending decisions.
More positively, October PMI data pointed to a solid and faster increase in purchasing activity at Kenyan firms, linked to efforts to expand stock levels. Delivery times continued to improve, albeit to a lesser extent than in September due to mentions of shortages at some vendors.
Weak material supply, higher VAT and rising energy prices combined to push total input costs higher in October, with the latest mark-up the quickest since July. Staff salaries were also up, but only slightly overall.
To protect profit margins, Kenyan firms often passed additional costs through to their clients. Consequently, output charges rose solidly and at the fastest rate since the beginning of the year.
In October, President Uhuru Kenyatta unveiled a KSh 25 Billion stimulus package for the health, education and agriculture sectors, a plan that is expected to boost economic recovery from the effects of pandemic-related shocks.
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