Private Sector Suffers as PMI Declines to 49 in February – Stanbic Bank

Kenya’s private sector suffers another difficult month with the February PMI declining to 49.0, from 49.7 in January 2020, pointing towards a decline in business conditions.

According to Stanbic Bank’s Monthly Purchasing Manager’s Index (PMI),  Households continued to struggle with weak cash flow, causing a notable decline in demand for goods and services.

Cytonn Investments explains that a reading of above 50 indicates an improvement in the business environment, while a reading of below 50 indicates a worsening outlook.

Weak cash flow continued to cause a decline in consumer demand and consequently a solid drop in output in February, affecting business sales and operations with firms reducing their business activities.

Confidence in a positive outlook for the market led to an increase in employment at Kenyan firms with the rate of growth being the strongest since November 2019.

Cost pressures, however, accelerated to a six-month high driven by the prices of fuel and foodstuff coupled with a shortage of raw materials attributable to reduced imports from China due to the Coronavirus outbreak.

Kenya has been increasingly dependent on imports from China with the country’s total imports from China standing at 21.1 percent in 2018, and 20.3 percent of total imports in the 11 months to November 2019.

With a temporary closure of business to manage spread in China, we expect the prices of major imports such as electronics and heavy machinery to rise due to forces of demand and supply.

The tourism sector, which is a major contributor to the country’s economy, is also likely to decline due to continued suspension of flights by major airlines as well as cruises.

Read Also: Equities Begin the Month on a High Note with Upward Performances