The monthly Purchasing Manager’s Index (PMI) highlighted that the index for the month of June 2022 declined for the third consecutive time to 46.8, from 48.2 recorded signaling a further deterioration in the business environment in the Kenyan private sector.
Notably, this was the lowest reading since April 2021, when the index came in at 41.5. The decline was largely attributable to the prevailing inflationary pressures with the inflation rate for the month of June coming in at 7.9 percent, from 7.1 percent.
There was a rise in input costs, occasioned by the increasing fuel prices, supply constraints as well as a weakening currency. Selling prices increased in tandem leading to a decline in new order volumes as consumers reduced their spending.
Key to note, purchasing activity by businesses fell compared to May, although inventories continued to rise due to stockpiling efforts amid concerns that supply would worsen or prices would rise.
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The chart below summarizes the evolution of the PMI:
Kenya’s general business environment has continued to deteriorate amid increased cost of living occasioned by constrained supply chains exacerbated by persistent geopolitical pressures, all of which have led to reduced consumer spending.
Going forward, we maintain a cautious outlook owing to the continued rise in the cost of fuel and production materials which has resulted in an increase in input costs.
Additionally, the continued depreciation of the Kenyan shilling is expected to further increase the production cost given that Kenya is a net importer.
As such, the recovery of the private sector business environment in Kenya is largely pegged on how quickly the global economy stabilizes with a key concern on the rising fuel prices as well as the upcoming August 2022 general elections.
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