The latest survey from Stanbic Bank Kenya signals a slight deterioration in private sector conditions for September, with the Purchasing Managers’ Index (PMI) dipping below the 50.0 no-change mark. This marks a decline from the mild recovery seen in August, when businesses began to bounce back following disruptions caused by widespread protests earlier in the year.
According to the survey, the PMI dropped to 49.7 in September, a fall from the previous month’s reading of 50.6. A reading below 50.0 indicates a contraction in business conditions, suggesting that the recovery seen in August was short-lived. Economist Christopher Legilisho from Standard Bank noted that the September figures indicate a weak rebound following the earlier turmoil, with new orders and output stalling due to muted consumer demand.
Economic Challenges Hamper Growth
Surveyed businesses reported a marginal contraction in activity, driven by a renewed drop in new business intakes across several sectors. Many firms cited challenging economic conditions as a key factor, with clients grappling with reduced cash flow, resulting in lower work orders. The service sector, in particular, saw a renewed decline in new business, while the agriculture, wholesale, and retail sectors continued to struggle.
Despite the overall dip, some businesses managed to report positive trends. Manufacturers and construction firms registered higher sales, with anecdotal evidence suggesting greater customer turnout, increased investment, and the positive impact of marketing efforts.
Resilience in Inventory and Employment
While overall demand remained low, Kenyan firms continued to expand their purchasing activity for the second consecutive month. Businesses increased their stock levels, hopeful of a future uptick in sales, with inventories rising at the fastest pace since May. This build-up was supported by a slight reduction in average lead times, reflecting a modest improvement in supply chain efficiency.
In terms of workforce numbers, the survey showed stability, with businesses neither hiring new staff nor replacing voluntary leavers. This is partly due to a softening of capacity pressures, with firms reporting little change in their backlog of work after recent months of accumulation. The private sector workforce, which had declined in August, stabilised in September.
Inflationary Pressures Ease
The survey data also offered a glimmer of hope regarding inflationary pressures, which have been a concern for many businesses this year. Input prices rose only marginally in September, marking the weakest increase in four months. The moderation in purchase prices helped slow the rise in overall business expenses. Wages also saw slower growth, reflecting stable input costs for most businesses.
Legilisho noted that the steady exchange rate and unchanged fuel prices over the past two months contributed to the easing of inflation. As a result, inflation for September is expected to remain muted, estimated between 4.0% and 4.5%.
Muted Outlook for 2024
Despite some positive signs in inventory growth and easing inflation, the survey highlighted subdued business confidence for the future. Only 4% of respondents expected an improvement in activity over the coming year, marking the weakest level of optimism in a decade. Businesses continue to face significant economic headwinds, with weak consumer demand and rising costs weighing heavily on future prospects.
“Business expectations for the coming year remain at their weakest levels in a decade due to the economic headwinds of this year,” Legilisho commented. While some sectors, such as manufacturing and construction, showed signs of resilience, the broader private sector appears to be bracing for a challenging year ahead.
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