Purchasing Manager Index (PMI) dropped to 52.9 in August from 54.1 recorded in July signalling a slowdown the private sector growth.
New orders rose steeply as companies reported increasing client numbers and larger purchases driving up demand. However, the rate of growth decreased marginally partly due to sales from abroad rising at a weak rate.
On top of that, there was a modest upturn in employment where firms reduced employment citing plans to limit staff cost pressures.
Furthermore, overall input price inflation ticked down to the weakest since April while cost pressures arose from higher taxes on some commodities and a stronger US dollar against the Kenyan shilling.
Cash flow problems slowing performance
Businesses suffered from cash flow issues, which hampered their ability to keep up with new orders leading to increased backlogs. Cash flow issues were partly due to the government backlog of arrears. For instance, in June Treasury Cabinet Secretary said that the government would pay 10.9 billion shillings arrears owed to suppliers.
In Kenya, CfC Stanbic Bank PMI is a business cycle indicator measuring agriculture, mining, manufacturing, services, construction, and retail sectors derived from a survey of 400 companies.
A reading above 50 indicates an expansion of activities compared to the previous month, below 50 signifies deterioration and 50 shows no change. The highest PMI (2014-2019) was 57.70 while the lowest was 34.40.
The report recommends improved accessibility to credit for companies and urges the government to clear arrears owed to the private sector.
