Kenya: PMI falls to lowest level since January in July but remains above the critical 50-point threshold
August 3, 2018
Kenya’s private sector lost momentum in July, as reflected by a fall in the composite Purchasing Managers’ Index (PMI), produced by IHS Markit and Stanbic Bank, which dropped to 53.6, down from 55.0 in June. This was the lowest print since January. The index, thus, moved closer to the crucial 50-point threshold that separates expansion from contraction in private sector activity but remains above the historical average of 52.8. July’s print marked the eighth consecutive month of recovery in business activity since the PMI slid below the threshold during last year’s prolonged drought and drawn-out election cycle.
While output and new orders both expanded at a robust pace, they did so at a slower rate compared to last month. Output rose at the weakest rate in eight months, while new orders grew at the slowest pace in six months. On the other hand, export orders increased at the swiftest pace since March owing to favorable demand in overseas markets. Firms hired more workers during July to meet the upturn in output and new orders, although the rate of job creation decelerated to a marginal pace. In the price front, firms faced higher input costs in July owing to constrained supply of raw materials and an increase in fuel costs. Although inflationary pressures strengthened, firms raised their output prices at the slowest pace since April.
Commenting on July’s result, Jibran Qureishi, Regional Economist E.A. at Stanbic Bank stated:
“Kenya’s private sector activity continued to expand although the pace of acceleration was moderating, but there is no cause for alarm. The health of the private sector remains sound and the decline in the PMI in July is still above the historical average since data collection began. Anecdotal evidence in July seems to be pointing to rising input costs for firms. That said, other tax measures may still come through over the coming months, subject to pending court decisions. In fact, the trend of higher input costs around July is actually quite seasonal according to the PMI survey, however the recent decline in food prices should bode well for consumption spending over the coming months.”
Author: Nihad Ahmed, Economist