Private Sector Conditions Dip, But With A Softer Blow

By Standard Investment Bank / Published February 12, 2024 | 2:13 pm



Economy

According to Stanbic Bank Kenya’s PMI survey, business conditions in the private sector exhibited improvement compared to preceding months, although they persisted within the contractionary range.

The index reached 49.8, representing a five-month peak and the fifth consecutive month of contraction, albeit marginally.

Furthermore, the index demonstrated an uptick from the December figure of 48.8, nearly reaching the threshold of 50.0, indicative of stabilization.

Businesses conveyed diminished optimism concerning future activities, with only 10% of respondents anticipating an increase in output over the next year.

We anticipate that the private sector will continue to experience subdued conditions in 2024, primarily due to high input costs associated with elevated electricity and fuel prices, along with tax burdens.

However, we expect gradual improvement in conditions as consumer behavior and preferences evolve.

Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration. The headline PMI rose to a five-month high of 49.8 in January, up from 48.8 in December, and was almost level with the 50.0 mark which signals a stabilization.

This was mainly due to slower contractions in activity and new orders, as well as a renewed uplift in staffing. Business activity at Kenyan firms fell for the fifth month running in January, albeit at the slowest pace in this sequence and only slightly.

The almost stable trend was linked to a similar picture for new order volumes, which decreased at only a fractional pace. Weak client demand and cash flow problems continued to hit sales at many companies, whereas others noted improvements in order books and foreign sales.

The softer fall in new orders was closely linked to a softening of inflation at the start of the year. The latest survey data signaled that input prices rose at the slowest pace since December 2022, with inflation having cooled markedly from a record high last October and posting in line with the series average.

Anecdotal evidence showed that a waning of fuel price pressures was a key factor, although firms continued to widely cite increases in import prices and tax burdens. Subsequently, average prices charged by Kenyan companies rose to the softest degree in nearly a year and a half.

Read Also: Kenyan Businesses Experienced Sizeable Falls In Output, New orders, And Employment In November






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