Kenya’s Private Sector Growth Sustained at Robust Pace in August

The Latest Purchasing Managers’ Index™ (PMI™) data released by CfC Stanbic Bank indicate that Kenya’s private sector firms reported sharper expansions in both output and new business during the month of August, leading to faster growth of the sector as a whole.

The rise in the headline index was mainly driven by ongoing growth of both activity and new work inflows in August. The respective rates of expansion quickened since July, and were marked overall. There were reports that commercial initiatives and the opening of new branches had contributed to new client wins, which in turn led to output growth, according to analysts at CfC Stanbic Bank.

Commenting on August’s survey findings, Jibran Qureishi, Economist at CfC Stanbic Bank said: “Business conditions improved in August underpinned by strong expansion in output and new orders mainly in the construction sector. Cost pressures remained elevated rising to a 17 month high which isn’t surprising as the currency still remains under pressure. We still think there is a bias for the MPC to tighten its policy stance further to curb inflationary expectations from rising while also ensuring that the currency pressures subside even though the Aug 15 headline inflation print declined.”

Mr. Qureishi further noted that given the current risk averse philosophy that foreigners have adopted towards Africa, a tighter monetary policy stance will have to be supplemented with higher real yields in the money market to stabilize the currency.

“New export orders also fell sharply in August despite the weaker local unit which perhaps is a reflection of the weak performance of our source markets. However, at the same time it’s encouraging to note that domestic demand was probably main driver of the expansion in growth in August which underlines the resilient and diversified nature of the Kenyan economy,” Qureishi added.

Cost Pressures

On the price front, cost pressures picked up to a 17-month high in August. Data suggested that the overall rise in input prices was underpinned by a sharp increase in purchasing costs, although further salary growth also contributed. The rate of expansion in purchase prices accelerated for the sixth consecutive month, with the weakness of the shilling versus the dollar continually mentioned as the driving factor.

However, growth of new business was slightly undermined by a weaker rise in new export work. The pace of increase eased to an 11-month low, and was subdued in the context of historical data.

Input buying in the Kenyan private sector rose more quickly in August, reflective of the trends seen for output and new orders. As a result, stocks of purchases increased at a faster pace. The rate of inventory building was the most marked since December 2014, with higher new work widely reported as the reason behind growth of input stocks.