According to a monthly survey released by Stanbic Bank Kenya on Friday, Kenya’s Purchasing Managers’ Index (PMI) (a measure of the business environment based on a survey carried out on more than 400 private sector companies) indicated a deterioration in business conditions in February 2023.
The index declined to 46.6 in February 2023 from an 11-month high of 52.0 in January 2023 and marks a major reversal considering that Kenya’s PMI had been above the 50.0 mark for the previous six months, an indication that the business environment was relatively healthy during that period. Additionally, the 46.6 recorded in February 2023 marks the first decline since August 2023.
Generally, readings above 50.0 usually signal an improvement in business conditions in the previous month while readings below 50.0 signal a deterioration.
Read: Rising Food And Gas Costs Push Kenya’s Inflation Up To 9.2%
The positive trajectory has now come to a halt, mainly attributable to demand weakness and a subsequent decline in new orders, reversing the strong sales volumes recorded in January 2023.
The deterioration does not come as a surprise, given the elevated and sustained inflationary pressures, with the Kenya inflation rate, according to the Kenya National Bureau of Statistics (KNBS) coming in at 9.2% in February 2023, an increase from 9.0% in January 2023, also a first increase in 3 months.
Stanbic Bank Kenya attributed the decline in new orders also for the first time since August 2022 to the high cost of living in the country as well as the lack of money in circulation, which stunted customer spending.
Consequently, diminished sales led to cuts in activity, employment, and purchasing by firms in February 2023 marking the strongest job losses seen since April 2021.
Read:Tough Times Ahead As Kenya’s Inflation Expected To Peak In January 2023
Moreover, export sales saw one of the fastest falls seen on record. The decline in export sales rings alarm bells considering that Kenya’s forex reserves remain dwindled and below statutory requirements. This has led to dollar shortages in the economy, contributing to the rapid depreciation of the Kenyan shilling.
According to the report, the supply chain performance remained stable but ended a five-month run of improvement as some firms reported shortages of timber and foodstuffs and delays at ports. As such, these disruptions resulted in a fall in stocks of purchases exacerbated the business environment’s decline
In contrast to the general trend that led to the retrogression of operating conditions, business confidence toward future output strengthened significantly in February and was at its highest level in nearly three years.
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