2020 has started on the wrong foot for Kenyan businesses as firms have had to contend with the first back to back monthly fall in sales since November 2017 with new orders falling for the first time in two years, the Stanbic Bank Kenya Purchasing Managers Index (PMI) shows.
The fall in sales according to the survey is attributable to the lack of liquidity in the economy with domestic customers preferring to cling on their cash.
Stanbic’s Regional Economist East Africa Jibran Qureishi says that the economy has also suffered as firms continue to face a shortage of raw materials owing to reduced imports from China due to the coronavirus outbreak over the past month.
“This has increased output prices as alternative import markets aren’t as cheap as China,” said Qureishi ” Unfortunately, at this point in time, it’s 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,”
According to the economist, in the event that there is an escalation into new geographies with the disruption potentially extending into the third quarter of 2020, the likelihood of a global recession will increase.
Stanbic’s PMI is acts as a barometer of the performance of the economy each month. Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
At 49.0 in February, the headline reading pointed to a second successive month of decline in the Kenyan private sector. The index dropped from 49.7 in January and was the lowest recorded in over two years.
Households continued to struggle with weak cash flow, causing a notable decline in demand for goods and services while output prices were raised solidly as firms faced greater cost pressures from inflated raw material prices.
Despite sales dipping locally, foreign sales rose at a much softer pace, which panellists link to weaker exchange rates.
Firms subsequently reduced activity further during February, as latest data showed a solid drop in output
that was only slightly less marked than in January. As well as impacting sales, businesses highlighted that weaker cash flow often stalled operations.
“Input spending rose modestly, although stocks continued to grow as firms remained hopeful of a rebound in activity in the near future. In fact, confidence in the year-ahead outlook neared the highest on record, reads the survey.
This optimism, as well as efforts to lower backlogs, led to a quicker increase in employment at Kenyan companies in February. The rate of growth was the strongest since last November, albeit broadly similar to the series trend.
Cost pressures meanwhile accelerated to a six-month high, with companies reporting that prices of fuel and foodstuff rose in the latest survey period.
Supply chain pressures were not evident, however, with vendor lead times improving for the second month in a row.
Despite weaker demand, Kenyan firms raised output prices in February, in a bid to maintain profit margins as cost pressures increased.
