Overall activity levels contracted solidly at the start of this year, as firms reported that a lack of money at households led to slower demand.
Matters were made worse by heavy rainfall patterns, that have been pounding parts of the country since December last year-affecting output of many businesses.
According to the Stanbic Bank Kenya monthly Purchasing Managers’ Index TM, January saw the headline PMI fall below the 50.0 threshold for the first time since last April 2019, posting 49.7.
This means there was a decline in business conditions in the private sector compared to December when the PMI was 53.3. The index was pushed down by a decrease in production levels as well as new orders, which sunk to their lowest levels since October 2017.
“Despite the slow start to the year from the private sector, there are reasons to be optimistic for the year ahead. The weakness in private sector activity in January seems largely due to the heavy rainfall from the end of 2019 which has constrained domestic demand,” said Mr. Jibran Qureishi, Regional Economist E.A at Stanbic Bank.
However, he said business confidence for future output soared. “This does not come as a surprise given some of the recent reforms such as the repeal of the interest rate capping law and ongoing clearance of pending bills which should underpin activity going forward. We also expect the agricultural sector to perform much better this year,” said Mr. Qureishi.
At its last meeting, the Central Bank of Kenya’s Monetary Policy Committee lowered the policy rate from 8.50 to 8.25. This follows a repeal of the rate cap law late last year; a move monetary authorities will enable businesses to access affordable bank credit.
Analysts at Stanbic said the January slowdown was mainly domestic. “With activity falling, there was a further build-up of outstanding work during January. Firms responded with another round of job creation, albeit one that was the weakest since last May,” said the bank.
Input buying was also restrained at the start of the year, as softer demand growth led to a much weaker increase in purchases. Despite this, stock levels continued to grow sharply.
After some disruption from heavy rains in December, businesses are slowly improving their deliveries as suppliers also step on the gas.
Purchasing Managers’ IndexTM (PMITM) surveys are now available for over 40 countries and also for key regions including the Eurozone. They are the most closely-watched business surveys in the world, favoured by central banks, financial markets and business decision-makers to provide up-to-date, accurate and often unique monthly indicators of economic trends.