Monthly Purchasing Manager’s Index Dips to 53.6% But Business Environment Still Vibrant

According to the Stanbic Bank’s Monthly Purchasing Manager’s Index (PMI), the business environment in the country continued to expand in July 2018 though at a moderate pace.

The seasonally adjusted PMI declined to 53.6 in July from 55.0 in June. A PMI reading of above 50 indicates improvements in the business environment, while a reading below 50 indicates a worsening outlook.

Firms reported growth in value of outputs due to the continued rise in new export orders, which rose at the fastest pace since March. This was despite high input costs attributed to an increase in fuel prices, leading to upward pressure on production costs, and consequently a rise in average selling prices with the cost burden being transferred to customers.

In response to increased output requirements, firms also raised their staffing levels though at a slow and marginal pace. The private sector has remained resilient as the PMI is still above 50.

Analysts, however, expect the sector to experience increased input costs going forward with the introduction of 16.0 percent VAT on petroleum products as from September 2018 and other tax reforms proposed under the Finance Bill 2018. 

According to the quarterly Balance of payments report, released in July, Kenya’s current account deficit improved during Q1’2018, coming in at 107.9 billion shillings from 129.7 billion shillings in Q1’2017, a decline of 16.8 percent equivalent to 8.9 percent of GDP in Q1’2018 from 11.3 percent recorded in Q1’2017.

The decline was attributed to export growth, which outpaced the growth in imports, growing at 7.1% to 162.9 billion shillings from 152.1 billion shillings in Q1’2017, compared to the 6.5 percent increase in imports to 432.1 billion shillings from 406.4 billion shillings in Q1’2017.

In addition, there was a 28.0 percent increase in the services trade balance, coupled with the 26.9 percent increase in the secondary income (transfers) balance, whose increase could be attributed to the 46.1 percent increase in diaspora remittances.

The current account deficit is expected to narrow further to 5.4 percent of GDP in 2018 from 6.2 percent in 2017.