Business Conditions Improve In February As Price Pressures Subside

Business activity expanded across the Kenyan private sector in February, according to the Stanbic Bank Kenya PMI®, as a further softening of inflationary pressures supported a fresh increase in new order volumes.

Lower fuel prices helped to cool input cost inflation to a 26-month low, supporting the softest increase in output prices for one-and-a-half years. Improving economic conditions led Kenyan companies to expand staffing levels at a faster rate and boost purchases of inputs.

Nevertheless, confidence regarding future activity fell to a survey low, suggesting a broad degree of uncertainty that activity growth will be sustained.

The headline figure derived from the survey is the Purchasing Managers’ IndexTM (PMI®). Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration.

The headline index rose for the third consecutive month in February, taking it above the 50.0 neutral threshold for the first time since last August.

At 51.3, up from 49.8 in January, the index was also at its highest level in just over a year, with positive directional influences seen in all five of its sub-components.

The greatest movement was found in the Output sub-index in February, which rose to its highest for 13 months and pointed to a moderate expansion in private sector activity.

Similar findings were also seen concerning new orders, as companies reported that improving client demand drove the fastest upturn in sales since January 2023. Firms additionally linked this to new product releases and improved stock levels, which rose slightly, as well as the positive impact of relaxed inflationary pressures.

Notably, input costs faced by Kenyan firms rose at the weakest pace in over two years in February, as inflation continued to ease from its record high last October. Falling fuel prices were reportedly a key contributor to lower cost burdens, although expenses still rose sharply overall amid mentions of currency issues and higher VAT payments.

The slowdown allowed firms to raise their selling charges to a softer degree. Charge hikes eased to the weakest recorded for a year-and-a-half and were aligned with the survey’s long-run trend.

Nevertheless, rising prices continued to restrict cash flow and spending power, according to survey comments, which meant that total sales growth was only marginal. Sector data signaled that construction and wholesale & retail were still greatly impacted, with sales declining sharply in these segments.

Furthermore, overall business sentiment was at its lowest level on record in February, as companies generally refrained from projecting an increase in activity over the coming year. Only 6% of companies were optimistic of an upturn.

Despite this, employment levels rose in February on the back of higher new order intakes, with firms citing the hiring of casual workers to meet workloads.

Staff increases were modest, but the fastest since last August. Purchases of inputs also expanded, ending a five-month run of decline, whereas improvements in supplier performance broadly stalled.

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