Falling demand pushes business confidence to 15-month low
Business confidence in the private sector last month dropped to a 15-month low on the back of subdued operating conditions, the latest Stanbic Bank Kenya Purchasing Managers Index (PMI) shows.
The index, which tracks private-sector activity, fell to a low of 51.2 in February from 53.2 in January on the back of falling sales amid softer customer demand. This marked the lowest reading since November 2017.
“The headline PMI fell from 53.2 in January to 51.2 in February, signalling only a modest improvement in the health of the Kenyan private sector economy,” says the survey.
Readings from survey above 50 signal an improvement in business conditions on the previous month, while those below 50 show deterioration.
However, employment growth accelerated to a four-month high. The survey says a weaker rise in overall demand instigated slower output growth for Kenyan firms in February. It states that over 25 per cent of firms saw a fall in sales amid softer customer demand.
“The rate at which activity increased was the least marked in 15 months, with some panellists reducing output due to cash flow problems and unfavourable weather conditions,” it says.
Jibran Qureishi, regional economist East Africa at Stanbic Bank, however, has tipped conditions to improve on the back of the upcoming rainy season.
“The first quarter of the year is usually associated with dry weather conditions and hence it is not surprising that the PMI is falling. This is more of a cyclical trend and as the long rains commence towards March and April, activity generally tends to recover boosting domestic demand,” said Mr Qureishi.
“That said, on a positive note, new export orders remained robust in February courtesy of the valentine flower sales to Europe. This subsequently lent support to the Kenya Shilling.”
A rebound in private sector activity will give some relief to the Kenya Revenue Authority (KRA), which has struggled to meet revenue targets due to a softer economy.