Kenya: PMI rises above critical 50-point threshold for first time in eight months
January 4, 2018
This rise in the latest composite Purchasing Managers’ Index (PMI) reading, produced by IHS Markit and Stanbic Bank, reflects the return of Kenya’s private sector to expansionary territory in the final leg of 2017 after contracting for eight consecutive months as the political scene, marred by months of protracted uncertainties, begins to stabilize. The index climbed to a one-year high of 53.0 points in December from 42.8 points in November, rising above the critical 50-point mark that separates expansion from contraction and signals improved business conditions.
December’s notable pick-up was underpinned by a surge in both output and new orders, which were fueled by higher demand amid reduced political tensions. Output increased at the sharpest rate since September 2016 and new orders rose for the first time in five months, reaching the fastest pace in nearly a year. New export orders also climbed for the first time since July on greater overseas demand, accelerating at the strongest rate since December 2016. The upturn in output requirements prompted firms to boost their purchasing activities, add to pre-production inventories and hire more staff, although the rate of job creation was marginal. A sharp increase in input costs—the highest since September 2015 and namely due to higher prices for raw materials—led firms to step up output prices to transfer the extra burden of cost-adjustment on to consumers.
Jibran Qureishi, Regional Economist for East Africa at Stanbic Bank, is optimistic that Kenya’s economy will see a turnaround this year: “Looking ahead, we remain optimistic that growth will recover over the coming year supported by the agriculture and tourism sector, while a resumption in public spending will also add some much-needed stimulus.”
Author: Nihad Ahmed, Economist