Kenyan private sector growth indices flat as credit crunch persists

What you need to know:

Purchasing Managers’ Index (PMI) survey shows firms raised payroll numbers slightly in January while there were signs of ongoing pressure on operating capacity.
The seasonally adjusted index stood at 52, as output increased at a modest pace, compared to December’s 54.1 points.
Firms were concerned that price pressures have picked up — both input and product prices — and they expect them to continue to rise in the months ahead.

Kenyan business growth indices were flat in January as credit crunch persisted with one showing slight improvement among firms and the other a marginal drop.

According to the Purchasing Managers’ Index (PMI) survey released by Stanbic Bank and HIS Markit on Monday, the private sector growth improved slightly, underpinned by a sharp expansion in new work, which was supported by a steep increase in new export orders.

The survey shows firms raised payroll numbers slightly while there were signs of ongoing pressure on operating capacity. The seasonally adjusted index stood at 52, as output increased at a modest pace, compared to December’s 54.1 points.

On the price front, it rose for the fourth successive month amid a further increase in input costs.

“The Stanbic Bank PMI fell to a three-month low in January starting the New Year more sluggishly after a solid close in 2016.

“In fact, since the legislation to cap interest rates came into effect in September 2016, we can now see signs of distress within the private sector as presented by lament about cash shortages,” said Jibran Qureishi, regional economist East Africa at Stanbic Bank.

“A further slowdown in private sector credit growth and poor weather conditions will most likely lead to a downward trend in the PMI over the coming quarter, more so as costs for firms will most probably rise.”

According to a separate poll, however, business sentiment in Kenya fell in January, pointing to a relatively soft start to the year.

The Standard Chartered-MNI Business Sentiment Indicator (BSI) fell 4.5 per cent month-on-month to 59.6, leaving it down 6.8 per cent year-on-year. Four of the five components of the headline indicator dropped as companies reported slower activity, said the poll.

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Firms were concerned that price pressures have picked up — both input and product prices — and they expect them to continue to rise in the months ahead.

While domestic demand, production and productive capacity have fallen, respondents noted that foreign demand had improved.

“Companies’ experience seems to confirm that some of their ‘future’ concerns in December are being realised,” said Razia Khan, Standard Chartered chief economist for Africa.

Of the five components of the headline indicator, four — new orders, production, employment and supplier delivery times which together account for 85 per cent of the headline indicator — fell. Only order backlogs increased.

Companies reported slower production and demand in January: production fell by 9.9 per cent month on month while productive capacity dropped 3.4 per cent.

Companies were also concerned about the inflation outlook.