Kenya: PMI tumbles to an all-time low in August amid heightened political uncertainties
September 5, 2017
The composite Purchasing Managers’ Index (PMI), produced by IHS Markit and Stanbic Bank, plummeted to an all-time low of 42.0 in August from 48.1 in July, falling further below the critical 50-point threshold that separates expansion from contraction, and indicating the worst deterioration in business conditions in the survey’s history.
Business activity plunged because of a slump in domestic and international demand, which triggered sharp falls in output, new orders, and stocks of purchases. New orders dropped for the first time in the history of the survey. An unending political saga and ensuing uncertainties around the now-annulled 8 August election have weighed heavily on Kenya’s economic performance, with high inflation weakening citizens’ purchasing power and causing demand to tumble. Firms responded to the bleak situation by reducing new hires and axing jobs, which caused employment to fall for the first time in the survey’s history, although the rate of job cuts was marginal. Firms took divergent positions on prices, however, with some continuing to offer discounts despite a rise in cost pressures emanating from higher input costs.
The dismal situation is likely to persist with the impending repeat election, scheduled for 17 October. Jibran Qureishi, Regional East Africa Economist at Stanbic Bank commented:
“This angst is likely to extend over the coming months due to the recent decision by the Supreme Court to nullify the presidential election results. The decision by the court is indeed a reflection of Kenya’s strengthening institutions and will certainly appease the foreign investor community. That said, as we have been pointing out previously, the promise of the private sector remains under risk should the ease of access to credit remain a challenge.”
Author: Nihad Ahmed, Economist