Kenya’s private sector activity fell in June, the sharpest drop in seven months, contrasting with the 16-month high recorded in May.
Data from the Stanbic Bank Kenya Purchasing Managers’ Index (PMI) fell to 47.2 in June from 51.8 in May. A PMI reading of above 50.0 indicates an improvement in the business conditions, while readings below 50.0 indicate a deterioration.
During the period, widespread economic challenges, protests surrounding the Finance Bill 2024, and policy uncertainty led to a significant decline in sales volumes across most sectors.
“The downturn was partially softened by a rise in new orders across manufacturing, which was the only monitored sector to register growth in June, said Stanbic.
Concerns about the proposed tax increases in the Finance Bill and lower customer spending dampened business confidence. This resulted in a decrease in purchasing activity and inventory levels for the first time in three months. Sectors like construction, agriculture, wholesale, and retail were particularly affected.
“In June, momentum in private sector activity declined, reflecting several concerns, top of the list being the proposed increase in taxes via the Finance Bill 2024, and the widespread protests in response,” Christopher Legilisho, an economist at Stanbic Bank, said.
Despite the overall slowdown, employment continued to rise, albeit at the weakest pace seen so far in 2024.
Looking Ahead
The report finds business expectations for future activity at a four-month low, suggesting ongoing concerns about economic stability.
In addition, the Central Bank of Kenya (CBK) remains optimistic about sustained growth, citing factors like anticipated increases in food supply and a stable exchange rate. However, concerns persist regarding fiscal policy, interest rates, and geopolitical risks.
“However, we expect firms to benefit from reduced inflationary pressures and an appreciating Shilling, which will lower input prices,” observes Cytonn Investments.
The Stanbic Bank Kenya PMI survey is based on responses from a panel of around 400 private sector companies across various industries.
Kenya’s overall economic growth for the first quarter of 2024 was 5%, compared to 5.5% in the same period of 2023. Sectors like agriculture, real estate, and hospitality showed positive growth.
Inflation eased to an average of 6.29% in the first quarter of 2024, down from 9.13% in the corresponding quarter of 2023.
