Kenya: Private sector PMI drops at the start of the year
February 5, 2020
The Purchasing Managers’ Index (PMI)—produced by IHS Markit and Stanbic Bank—fell markedly to 49.7 in January from 53.3 in December, thus dropping below the 50-threshold that indicates a deterioration in business conditions in the private sector for the first time since April 2019.
January’s drop largely reflected falling output and slowing new order growth. While new orders rose at a slower pace compared to the previous month, production among Kenyan firms contracted at the sharpest rate in over two years in January, partly on adverse weather conditions. As a result, backlogs of work increased, and firms raised their staffing levels at the weakest pace in eight months. On the price front, input costs increased, leading firms to raise output prices for the second month straight. Lastly, despite a decline in output in January, firms’ expectations of future production surged amid projections of stronger demand. Commenting on the print, Jibran Qureishi, regional economist for East Africa at Stanbic Bank, noted:
"Despite the slow start to the year from the private sector, there are reasons to be optimistic for the year ahead. The weakness in private sector activity in January seems largely due to the heavy rainfall from the end of 2019 which has constrained domestic demand. However, business confidence for future output soared, which doesn’t come as a surprise given some of the recent reforms such as the repeal of the interest rate capping law and ongoing clearance of private sector arrears which should underpin activity going forward. We also expect the agricultural sector to perform much better this year."
Author: Hanna Andersson, Economist