Business activity in Kenya’s private sector slowed for a fourth straight month in May, a private business survey showed.
The Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) came in at 49.4, up from 47.2 in April 2023, signalling the slowest deterioration of the business environment, mainly attributable to the elevated inflationary pressures.
Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration.
“Inflationary pressures meant weak demand; new orders declined, as did output in the manufacturing and wholesale and retail sectors,” said Mulalo Madula, Economist at Standard Bank.
“Input prices are now at their highest since the survey began in 2014 as the KES depreciated further, which increased import costs. This caused the greatest increase in output prices in seven months — but it was less than the concomitant increase in input prices. Still, as in recent months, and despite a further decline in new orders, export orders gained further momentum.”
In the past twelve months, inflation in Kenya has remained above the Central Bank of Kenya’s (CBK) target range of 2.5%–7.5%. In May 2023, the inflation rate increased to 8.0% from 7.9% recorded in April 2023. This has put consumer wallets under pressure, leading to a reduction in demand for certain goods and services.
During the month, the high cost of purchase is also attributable to the sustained depreciation of Kenya shilling against major currencies, which has made imports very expensive.
As a result, manufacturers and producers transfer the high costs to consumers through hikes in consumer prices in order to maintain their profit margins.
According to Mulalo, despite the poor business environment, “Employment expanded at the fastest rate since November 2021; however, employment in the wholesale and retail sub-sector was down.”
“Inventories managed to increase despite firms slowing purchases of inputs, implying that inventory was driven partly by fewer new orders. Positively, supplier shipping times were much tighter.”