Business deals fall to 15-month low as demand cools off

Thursday, July 7th, 2022 01:26 | By

Business activity hit a 15-month low in early June as costs ballooned, tinkering demand for service providers, a private sector survey has shown.

For the third consecutive month, businesses reported a drop in activity, with the latest S&P Global Kenya Purchasing Managers’ Index (PMI) registering a fall of 46.8 from 48.2 in May.

Last month’s appraisal was the lowest since April 2021, signalling a solid decline in the health of the Kenyan private sector, triggered by rising inflation, and a weakening shilling.

“Economic activity in Kenya contracted for the third consecutive month as inflationary pressures continued to weigh on demand by customers and output. Output, and consequently the headline PMI reading fell to the lowest level since April 2021 when stringent public health restrictions were last imposed,” said Kuria Kamau, Stanbic Bank Kenya’s Fixed Income and Currency Strategist.

The Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) dropped below the 50 no-change mark in April to 49.5 from 50.5 in March. This is the third straight month such a reading has fallen below the 50 mark.

The 50 mark separates growth in activity from contractions, while readings below 50 show a deterioration.

The survey also shows that domestic demand dropped at an accelerated pace with the fastest declines being recorded in the manufacturing, construction and trade sectors.

According to survey panelists, the June drop in activity was occasioned by inflationary pressures, which impacted both operating costs and customer demand with firms forced to scale back on output and employment.

Kenyan firms passed higher costs to their customers to protect profit margins, while weaker client orders led to a further slight reduction in purchasing activity in June, even though inventories continued to rise due to what the panelists described as “stockpiling efforts.”

Input price inflation in the Kenyan economy remained considerable in June. 

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