Kenya: PMI drops to record low in September; remains in expansionary territory
October 7, 2015
The composite Purchasing Managers’ Index (PMI), which is produced by Markit and CfC Stanbik Bank, dropped markedly from August’s 55.0 to 51.9 in September, falling to the lowest level since the survey’s beginning in January 2014. Nevertheless, the index remained above the 50-threshold, which points to expansion in business activity. The index has been resting in expansionary territory since the survey’s beginning.
According to Markit and CfC Stanbik Bank, September’s setback mainly reflects that output, new business and employment all expanded at a slower rate than in the previous month. In fact, all three sub-categories recorded their slowest rate of expansion in the survey’s history. According to the report, new business was negatively affected by the weakness of the shilling as well as teacher strikes. Meanwhile, new export orders registered solid growth in September. Regarding price developments, input prices registered a steep increase in September, partly owing to the weakness of the Kenyan currency, and output charges also registered an increase.
According to the survey report, “the weaker exchange rate has certainly increased import costs for most firms which has consequently suppressed their profit margins, perhaps also leading to the significant slowdown in workforce growth. However, the currency is likely to appreciate in the coming months due to the rise in real yields in the Kenyan money markets which will probably increase portfolio inflows and thus lend some much needed support to the balance of payments. Nonetheless, economic growth which expanded by a healthy 5.5% y/y in Q2 2015 from 4.9% y/y in the previous quarter will probably subside in the third quarter this year judging by the activity of the CfC Stanbic PMI. Higher interest rates will stifle growth in the private sector; however this may only be temporary as rates eventually move lower.”