Kenya: PMI edges down in June but remains robust amid buoyant demand conditions
July 4, 2018
The composite Purchasing Managers’ Index (PMI), produced by IHS Markit and Stanbic Bank, fell to 55.0 in June from 55.4 in May. Thus, the index moved closer to the critical 50-point threshold that separates expansion from contraction in the private sector and remains above the historical average of 52.8. June’s reading marked the seventh consecutive month of recovery in business activity since the PMI slid below the crucial 50-point threshold during last year’s drawn out election cycle.
Despite losing ground from the previous month, the latest reading reflected a strong but more moderate improvement in business conditions across Kenya’s private sector, with robust, albeit slower, upturns in output and new business. Strong demand from overseas markets led to a sharp but slightly more moderate rise in new export orders. To meet the higher output requirements amid buoyant demand conditions, firms raised their staffing levels in June, with the job creation rate climbing to a firm pace. On the price front, firms in the private sector faced increased input costs during the month, owing to higher prices for food and fuel. This prompted companies to lift their output prices to transfer the higher cost burden on to customers.
Providing insight into implications of the recently-approved budget, Jibran Qureishi, Regional Economist E.A. at Stanbic Bank commented:
“The private sector remains on a promising trajectory. In fact, the proposal in the FY2018/19 budget to repeal the interest rate capping law was a welcome development and indeed subject to approval by parliament, will unleash some much-needed private sector driven stimulus to the economy. Furthermore, while the portfolio investor community was clearly pleased with the government’s plan to consolidate public finances, there are still uncertainties as most of this consolidation is really banking on very ambitious revenue assumptions.”