Kenya's private sector activity slowdown for 3rd consecutive month

• Slowdown in private sector due to upcoming elections
• Stanbic link commercial lending rates cap on the slowdown

NAIROBI, KENYA: Kenya's private sector activity contracted for the third consecutive month in July, but at a slower pace, as firms took a cautious stance ahead of national elections next week, a survey showed on Thursday.

The Markit Stanbic Bank Kenya Purchasing Managers' Index (PMI) edged up to 48.1 during the period, from a series low of 47.3 the previous month. The PMI fell below the 50.0 level which separates growth and contraction in May.

"Elevated political temperatures and a lack of access to credit for firms and households, kept the Stanbic PMI in contractionary territory," said Jibran Qureishi, the regional economist for East Africa at Stanbic Bank.

He said if the Aug. 8 elections -- in which voters will pick a president, parliament and regional authorities -- pass off peacefully, activity could start to improve gradually.

A disputed presidential vote in 2007 descended into ethnic violence in which 1,200 people were killed although the next poll in 2013 passed off peacefully.

A slowdown in private sector credit growth, mainly caused by a cap on commercial lending rates, has offered another drag to the economy in the run-up to the election.

"In the event that the interest-rate-capping law remains in place for longer, economic activity is unlikely to improve meaningfully over the near to medium term," Qureishi said of the cap that was introduced last September.

- Detailed PMI data are only available under licence from Markit and customers need to apply to Markit for a licence.