Kenya’s business activity weakened in August as the headline Purchasing Managers’ Index fell to 49.7 from 51.3 recorded in July due to rising costs of raw materials and reduced stock purchases.
According to Stanbic Bank PMI readings, while firms recorded higher sales volumes for three consecutive months to August this year, companies struggled to purchase inputs due to rising prices and limited liquidity.
“Kenya’s Stanbic Bank PMI weakened in August due to momentum loss in the private sector as elevated raw materials costs and tight cash flows constrained firms’ ability to translate stronger demand into output. Nevertheless, new orders proved resilient due to bulk purchasing, advertising, and demand for private healthcare,” said Christopher Legilisho, Economist at Stanbic Bank.
Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.
August marked the 6th straight months that output declined as productivity was further hurt by supply shortage of some key materials.
However despite cutbacks in production, business recorded an increase in new orders for the third consecutive month in August as sales rose.
Stanbic Bank attributes the mismatch between output and new orders on high inflation which impacted companies ability to buy inputs due to rising prices and limited liquidity.
“Inflationary pressures remain elevated,’ said Legilisho. “However, rising wage costs are broadening price pressures beyond raw materials. Therefore, underlying inflation may prove sticky as firms pass these increases on to consumers. This may well play out, particularly if demand remains robust. Further, sustained cost pressures may continue to weigh on margins as well as delay a stronger output recovery.”
Nonetheless, Stanbic Bank recorded increase in employment as firms moved in to hire additional staff to clear backlog of order.
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