Kenyan companies are reeling from the coronavirus outbreak which is hurting their business with the Private sector activity falling in February according to the latest Purchasing Managers’ Index.
“The first fall in new orders for over two years,” reads the survey findings.
The Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) for manufacturing and services fell to 49.0 in February from 49.7 in January. Readings above 50.0 indicate growth.
Contributing to the decline was a softening in new business at Kenyan firms, marking the first monthly fall since November 2017.
“Firms faced a shortage of raw materials owing to reduced imports from China due to the coronavirus outbreak,” said Jibran Qureishi, regional economist for East Africa at Stanbic Bank.
“This has increased output prices as alternative import markets aren’t as cheap as China.”
“Unfortunately, it is difficult to assert whether we are at the beginning, middle or end with the coronavirus due to scant and inadequate data points. A scenario where the virus is contained in the next couple of months is probably the best case. However, if there is an escalation into new geographies with the disruption potentially extending into the third quarter of 2020, the likelihood of a global recession then increases,” he added.
On the other hand, NCBA Research Team, Faith Atiti and Stephanie Kimani in their Weekly Fixed income Report on Tuesday noted that historically, the Kenyan economy has often shown considerable resilience in times of global economic turbulence.
“However, this may be tested in the coming months, as the coronavirus outbreak sends ripples across the world. Over the last decade, Kenya has strengthened its trade ties with China and is, therefore, more vulnerable to the current shock.”
Over 20% of Kenya’s imports originate from China but could be significantly more given that other sources of imports may still have supply linkages with China.
According to NCBA, the potential shocks may warrant continued policy intervention to anchor economic prospects. However, limited fiscal space may make it difficult for the government to provide any catalytic support to the economy.
Whereas monetary policy has more maneuverability, rising inflation, persistent transmission challenges, and fragile business confidence may undermine its effectiveness. Policymakers may, therefore, find themselves at crossroads as seek to boost growth and contain inflation, a position that may require a very divergent policy response,” they note.
