Kenya: PMI drops to eight-month low, but remains in expansionary territory
The Purchasing Managers’ Index (PMI)—produced by IHS Markit and Stanbic Kenya Bank—fell to 50.9 in February, down from January’s 53.2 print. February’s result marked the lowest reading since June 2020, although the index remained slightly above the 50-threshold, indicating that operating conditions in the Kenyan private sector continued to improve for the eighth month running—albeit only marginally.
February’s slowdown was a reflection of both new orders and output growing at more moderate rates. As such, firms’ purchasing activity also slowed pace, leading to a milder increase in inventory levels. Moreover, employment levels increased marginally in February; however, some firms cut workers’ salaries to maintain staff levels. Consequently, average wage costs fell at the sharpest pace in seven months.
On the price front, purchase costs continued to increase, likely due to the VAT hike in late December—which came as part of the roll back of some stimulus measures—on top of higher prices for fuel and material shortages. The increase in purchasing prices prompted firms to increase output prices for the second month in a row, in a bid to maintain margins. Lastly, expectations for the coming 12-month period dipped in February.
Commenting on the reading and the outlook, Kuria Kamau, fixed income and currency strategist at Stanbic Bank, noted:
“The pace of the post-pandemic recovery slowed down in February on account of a marginal increase in demand. The improvement in demand was negatively impacted by subdued cash flows in some sectors of the economy which resulted in limited household and client spending. […] That being said, the future outlook for business activity remains positive despite it declining slightly from last month.”