Private sector activity dips for third straight month on high inflation

Wednesday, December 6th, 2023 05:00 | By
Man operating Machine. PHOTO/Print
Man operating Machine. PHOTO/Print

Kenya’s private sector activity continued to decline for the third straight month in November amid soaring inflation that suppressed demand.

The Stanbic Bank Kenya Purchasing Managers’ Index (PMI) fell to 45.8 last month, from 46.2 in October. Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

Christopher Legilisho, an Economist at Standard Bank said the reading marked the third contraction in as many months and was among the weakest seen in the index’s near decade-long history.

“The Kenyan Purchasing Managers Index deteriorated further in November, reflecting still difficult business conditions for the private sector. Besides the agricultural sector, output and new orders declined across all monitored sectors, with the construction sector the worst hit.

The survey noted that inflationary pressures and cash flow difficulties led to a decline in customer spending, with the rate of job losses increasing in the private sector because of weaker output and reduced workloads.

A recent report by the Federation of Kenya Employers (FKE) indicated that an estimated 70,000 jobs have been lost year-on-year in the formal private sector due to the rising cost of doing business, with with stronger falls only registered during the first Covid-19 pandemic lockdown.

Legilisho said businesses reported increasing inventories, a factor that led to a rise in selling prices in the review period as the firms strained to cope with the cost of warehousing the inventories and supply chain constraints.

He also attributed the rising input prices and purchase price pressures to further increases in fuel prices, electricity costs and taxes among other factors.

Last month, the Energy and Petroleum Regulatory Authority (Epra) revised the price of petrol by Sh5.72, diesel by Sh4.48, and kerosene by Sh2.45 per litre. In September, electricity consumers paid Sh26.57 per unit of power, the highest in five years. This was an increase from Sh24.77 for a kilowatt (kWh) of electricity consumed in August.

However, Legilisho said exporters continued to perform strongly, helping to offset weak domestic output as demand from Europe and Asia was greater.

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