[Kenya] Private sector output growth accelerates to fastest in two years, Stanbic Bank Purchasing Managers' Index
Operating conditions across the Kenyan private sector improved at a solid rate according to January survey data. Although the latest index reading was slightly lower than the prior month, it was nonetheless the second-highest figure in just over a year.
Overall growth was underpinned by a steep and faster expansion in output, with the upturn in new orders also remaining strong. Meanwhile, input cost inflation accelerated further to the fastest since September 2015, largely driven by higher purchase prices.
This did not deter buying activity however, which grew at the quickest rate since December 2016. Output prices also increased strongly amid reports of more favourable demand conditions.
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 deterioration.
Falling slightly to 52.9 in January from 53.0 in December, the latest PMI reading signalled a solid improvement in business conditions that was slightly weaker than the prior month. Despite this, overall private sector growth was the second-strongest since December 2016.
Commenting on January’s survey findings, Jibran Qureishi, Regional Economist E.A at Stanbic Bank said:
“Output rose to its highest level since January 2016, a trend we suspect is likely to persist over the coming year. Notably, the contraction we saw in the agriculture sub-sector in the first half of 2017 is likely to reverse in the half of 2018, which should subsequently provide tailwinds for other sectors to flourish. Furthermore, the horticulture and floriculture sub-sectors should also perform well over the coming months largely underpinned by the ongoing recovery in the Eurozone as well as the recent appreciation of the EUR currency. We retain our GDP estimate for 2017 at 4.8% but we see a recovery to 5.6% in 2018. ”
Underpinning the improvement in the health of the private sector was a steep rise in business activity. Moreover, the pace of expansion accelerated to the fastest in two years. Anecdotal evidence linked the increase in output levels to more favourable demand conditions and the acquisition of new clients.
January survey data indicated an ongoing recovery in new business received by Kenyan private sector firms. Although the rate of growth softened slightly from December’s 11-month high, the expansion remained strong overall.
Panelists suggested that the latest rise in new orders stemmed from greater client demand. Similarly, the upturn in new export business was extended further and the pace of increase was solid despite easing from the prior month.
On the price front, overall input costs rose at a sharp rate largely driven by a marked increase in purchase prices. Survey respondents largely stated that greater raw material costs were due to higher market prices for raw materials, especially fuel. Staffing costs also rose, but only at a marginal rate.
For the second successive month, average prices charged increased in January. Amid reports of improved demand conditions, private sector firms were reportedly able to pass on higher input costs to clients. Moreover, the rate of charge inflation quickened and was the sharpest since December 2016.
Reflecting the recent trend in output, purchasing activity increased steeply in January. The rate of growth in buying accelerated to the strongest in over a year. Greater client demand also underpinned a faster rise in pre-production inventory levels.
Finally, greater production requirements began to place pressure on resources. Both employment and backlogs of work rose for the second month running in January, albeit at relatively modest rates.