Kenya: PMI falls in May but remains strong
June 6, 2018
The composite Purchasing Managers’ Index (PMI), produced by IHS Markit and Stanbic Bank, came in at 55.4 in May, down from April’s 27-month high of 56.4, but remains above the critical 50-point threshold that separates expansion from contraction in the private sector. Also, it still sits above the historical average of 52.8. May’s reading marked the sixth consecutive month of recovery in business activity since the index dipped below the crucial 50-point mark during last year’s prolonged election cycle.
May’s reading was underpinned by weaker but still robust expansions in output, new orders and employment. While growth in output was strong and above-average thanks to positive economic conditions and favorable demand, it eased slightly from April’s survey-record high. Stronger demand from both domestic and international markets also led to a sharp climb in new business, although the pace of expansion softened from April’s 16-month high. Firms raised their staff intake in response to the upturn in output requirements; that said, the job creation rate moderated from April’s 16-month high and was marginal. Backlogs of outstanding business remained unchanged, however, ending two months of uninterrupted growth. On the price front, greater demand and limited supply of raw materials led to higher input prices, whereas wages rose at a modest pace. Firms raised their output prices for the sixth consecutive month in response.
Providing a forward-looking perspective in the context of May’s PMI reading, Jibran Qureishi, Regional Economist E.A. at Stanbic Bank commented:
“[…] all eyes will now shift towards the FY2018/19 budget that will be read later this month. The market will be keen to see what measures the government will put in place to consolidate its public finances, something that is long overdue. Moreover, any additional details of the Financial Market Conduct Bill will also be sought out for given the broad concern currently that the draft Bill may not result in a more favourable environment for credit extension to the private sector and also that it may not amend the complications with monetary policy signalling that the current interest rate capping law framework has brought about.”
Author: Nihad Ahmed, Economist