The business confidence in Kenya remained weak in the month of October largely affected by rising cost of living linked to new fuel prices and the ongoing currency weakness.
According to the latest Stanbic Bank Kenya Purchasing Manager Index (PMI) survey data, new orders contracted across all sectors surveyed, with new orders falling the fastest in the construction, wholesale and retail sectors. Cost-of-living pressures and cashflow difficulties saw customer demand declining, while weaker output and lower workloads led to an increased rate of job cuts.
“In response to lower levels of output and new orders, Kenyan private sector firms reduced their staffing numbers for the second month running in October. Furthermore, the rate of job cuts accelerated to a solid pace that was the joint-quickest since June 2020,” notes the report.
Around 46 per cent of monitored firms reported that total expenses had increased from September, driven by a further uplift in fuel prices and associated transport costs. In addition, companies noted that ongoing currency weakness and increased tax burdens had added to costs.
In order to maintain sufficient margins, Kenyan companies also reported an unprecedented increase in selling prices in October, with the rate of inflation climbing above the previous high in mid-2022.
The uplift in charges had a strong impact on client demand and business activity. The latest survey data indicated a marked and accelerated decline in new order volumes, which was broad-based across each of the five sub-sectors but steered by construction and wholesale & retail. Similarly, output levels contracted sharply and to a greater degree than in September.
“The Kenya Purchasing Managers’ Index (PMI) deteriorated markedly in October. Output and new orders contracted across all sectors surveyed, with new orders falling the fastest in the construction, wholesale and retail sectors. Cost-of-living pressures and cashflow difficulties saw customer demand declining, while weaker output and lower workloads led to an increased rate of job cuts,” said Christopher Legilisho, Economist at Standard Bank.
“Meanwhile, Kenyan businesses reported burgeoning inventories, and therefore raised their selling prices in October to protect their profit margins. Input prices and purchase price pressures faced by Kenyan businesses were attributed to a further increase in fuel prices and transport costs, ” he said.
He noted that firms involved in new export orders remained robust, with greater demand from both Africa and Europe. However, business expectations for the next 12 months are quite weak.
PMI Index for Kenya up in August to 51.1 from 50.6 in July (kenyanwallstreet.com)
