Kenya: PMI rises in August moving further above the critical 50-point threshold
September 5, 2018
Kenya’s private sector gained speed in August, as reflected by a climb in the Purchasing Managers’ Index (PMI), produced by IHS Markit and Stanbic Bank. The PMI rose from 53.6 in July to 54.6 in August. The index thus moved further up from the critical 50-point threshold that separates expansion from contraction in private sector activity and remains above the historical average of 52.8. August’s print represents the ninth consecutive month of expansion in private sector business activity since the PMI slid below the crucial threshold during last year’s prolonged drought and drawn-out election cycle.
August’s PMI reading was underpinned by sharper increases in output and new orders. Higher inflows of new business drove the rise in output. Improved demand from overseas markets fueled an upturn in export orders, which grew at a slightly more moderate pace compared to July. Firms raised their staff in-take to meet the upswing in output and new orders. On the price front, firms faced higher input costs driven partly by raw material shortages. Fuel and food saw the biggest increase in prices. Firms raised their output prices in response to pass on the burden of adjustment onto clients, with inflation easing to the weakest print since the end of 2017.
Commenting on the outlook for the economy in the context of August’s PMI reading, Jibran Qureishi, Regional Economist E.A. at Stanbic Bank stated:
“Going forward, if the VAT on fuel products stays in place, there will probably be a notable second round impact in the economy. However, authorities may soon come to terms with the fact that painful tax measures are symptomatic of excessive and unrelenting expenditures.”
Author: Nihad Ahmed, Economist