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Cost of living pressures weighs on sales, causing business conditions to decline in February: Stanbic bank’s survey.

Stanbic bank survey – The Kenya PMI pointed to a decline in business conditions in the second month of 2023, the first since August last year, as several key metrics fell into contraction territory. Output and new orders both recorded sharp falls, leading to renewed cuts in employment and purchasing. The sharp fall in sales came amid reports that cost-of-living pressures and cash flow problems had stunted customer spending.

At the same time, currency weakness and reports of increased tax burdens fed through to a sharper rise in input costs, and one that was among the fastest seen since the series began in 2014. While some firms passed these costs on to customers, the rate of charge inflation was broadly unchanged from January and much softer than that of input prices.

The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

For the first time in six months, the headline PMI registered below the 50.0 no-change mark in February, dropping to 46.6 from an 11-month high of 52.0 in January. The reading indicated a solid deterioration in operating conditions, driven by renewed contractions in many of the covered metrics. Demand weakness was particularly clear in the latest survey data, as companies reported a sharp contraction in new order volumes following a solid upturn in January.

Survey panelists frequently noted that customers had pared back spending due to high inflation and a lack of money in circulation. Firms also suffered from a marked fall in export sales, one of the fastest seen on record. The downturn in sales led Kenyan companies to make renewed cuts to activity, employment and purchasing

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in February. Output fell sharply and for the first time in four months, while input purchases fell for the first time since last August. While job losses were only mild overall, they were the strongest seen since April 2021. Supply chain performance was broadly stable in February, ending a prior five month run of improvement. Some firms mentioned shortages of items such as timber and foodstuffs, as well as delays at ports.

The disruption contributed to a fall in stocks of purchases. Cost pressures accelerated to a notable pace during February, the highest for five months and among the quickest on record. Purchase price inflation was the key driver, according to panelists, amid reports of increased taxes and higher import costs as the exchange rate against the US dollar worsened.

Output charges rose accordingly, although the rate of inflation was broadly unchanged from January and much softer than the increase in costs. In contrast to the general trend, business confidence towards future output strengthened markedly in February and was at its highest level in nearly three years.

Find The full Survey: KE_PMI_ENG_2303_LITE.PDF

 

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