Kenya: PMI remains above the 50-point threshold in January
February 5, 2018
The latest composite Purchasing Managers’ Index (PMI), produced by IHS Markit and Stanbic Bank, dipped to 52.9 in January from 53.0 in December. It remains above the critical 50-point threshold that separates expansion from contraction in private sector activity and marked the second-highest reading since December 2016. Kenya’s private sector returned to expansionary territory in December following seven months of contraction.
A pick-up in demand against a slowly stabilizing political scene propelled strong expansions in output and new orders. Business activity accelerated at the swiftest rate in two years, and new orders also grew at a robust pace, albeit moderating slightly from December’s 11-month high. There was greater demand, not only from the domestic market, but also from overseas markets: New export orders rose at a solid, but slightly softer, pace compared to December. Backlogs of work increased due to rising new orders, prompting firms to bump up staffing levels. Higher prices for raw materials, notably fuel, drove an upturn in overall input costs. Firms passed on the added cost burden to consumers by raising output prices, which caused inflation to rise to the sharpest rate since December 2016.
Jibran Qureishi, Regional Economist for East Africa at Stanbic Bank, projects an acceleration in the economy, commenting:
“Output rose to its highest level since January 2016, a trend we suspect is likely to persist over the coming year. Notably, the contraction we saw in the agriculture sub-sector in the first half of 2017 is likely to reverse in the half of 2018, which should subsequently provide tailwinds for other sectors to flourish. Furthermore, the horticulture and floriculture sub-sectors should also perform well over the coming months largely underpinned by the ongoing recovery in the Eurozone as well as the recent appreciation of the EUR currency.”
Kenya Fixed Investment Forecast
FocusEconomics Consensus Forecast panelists expect fixed investment to expand 5.1% in 2018, which is down 0.2 percentage points from last month’s forecast. For 2019, panelists expect growth in fixed investment to accelerate to 5.6%.
Author: Nihad Ahmed, Economist