![[Kenya] Private sector growth eases to ten-month low, Stanbic Index](Images/2018/10/Nairobi economy.jpg)
[Kenya] Private sector growth eases to ten-month low, Stanbic Index
September data signaled a slower improvement in business conditions in Kenya’s private sector, with the latest expansion being the weakest in the current ten-month phase of growth.
Slowdowns in output and new order growth were key factors behind the lower headline PMI figure. In terms of inflation, price pressures sharpened amid reports of higher taxation and fuel bills.
The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI™). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
Commenting on September’s survey findings, Jibran Qureishi, Regional Economist E.A at Stanbic Bank said:
“The Stanbic PMI averaged 55.6 in the second quarter of 2018 up from 54.4 in the first quarter. Indeed, the improvement in business conditions in the second quarter was consistent with the official GDP growth rate which expanded by 6.3% y/y in Q2 up from 5.7% in Q1. However, cost pressures and enhanced business uncertainty due to new fiscal year tax measures in the third quarter, is likely to moderate the pace of GDP growth. Nevertheless, we have opted to revise our 2018 GDP growth estimate upwards to 5.8% y/y from 5.6% y/y previously owing to a solid performance from the agriculture, ICT and tourism sectors in the first half of the year.”
The main findings of the September survey were as follows:
At 52.7, down from 54.6 in August, the latest figure indicated an improvement in business conditions across the private sector in September; the tenth month in a row that this has been the case.
That said, the rate of growth was the slowest in the aforementioned sequence. Furthermore, being only modest overall, the expansion was weaker than the historical average.
Continuing the sequence of growth seen since December last year, output improved once again in the Kenyan private sector during September. Some firms linked rising output to higher inflows of new business. That said, the rate of growth was the slowest in ten months during the latest survey period.
New order books improved in September, albeit at a slower rate than seen in August. In fact, the rate of growth was the weakest registered since January.
Contrasting with the trend seen for total new orders, foreign demand improved at an accelerated pace during September. According to anecdotal evidence, some firms utilized marketing initiatives to gain international exposure and acquire new clients.
Kenyan private sector firms continued to hire additional staff during the latest survey period. Many linked higher payroll numbers to rising output requirements. That said, the rate of growth was below the series’ long-run average.
On the inflation front, higher government taxation and rising fuel bills underpinned the sharpest increase in average cost burdens recorded for seven months during September. The rate of input price inflation was sharp overall.
Partly reflecting higher operating costs faced by businesses in the private sector, selling prices were raised at a marked pace that was the fastest since February 2014 during September. Output charges have risen for ten straight months.
Backlogs of work increased for the second month in a row, linked to slower activity growth. The rate of expansion was solid overall, however.
Meanwhile, inventories increased during September, linked to higher purchasing activity.
