Report: Private sector performance improves in May despite weak output growth

NAIROBI, KENYA: Kenya recorded a sustained growth in the private sector during the month of May with business conditions improving at a robust pace, despite slowdown in output growth, according to the Purchasing Managers Index, released by CfC Stanbic Bank.

Underpinning the overall expansion, according to analysts at CfC Stanbic Bank, was a strong increase in new orders alongside a survey-record rise in payroll numbers.

Data also provided some cautionary notes, however, with growth rates for output and input buying slowing sharply since April. Moreover, both input costs and output charges rose more quickly in May. 

Commenting on May’s survey findings, Jibran Qureishi, Economist at CfC Stanbic Bank said:  “Growth in Kenya’s private sector eased in May; however the PMI still indicated a recovery from the slowdown in the first quarter of the year. Notably, cost pressures intensified with both input and output prices rising sharply probably due to the weakness in the Shilling which increased the cost of imports for most firms.” 

“The cost pressures arising from the weaker currency are not likely to be entrenched considering that policymakers are likely to take measures to manage the pace of this depreciation while keeping a close eye on the trade weighted Shilling. On a positive note though, job creation accelerated to a record high although a sharp fall in backlogs of work suggests to us that there is minimal spare capacity for companies to sustain this,” he explained.                                                                                                                                                                         Growth of new businesses

May data suggested that the overall improvement was partly driven by marked growth of new businesses. The latest rise was stronger than the series average, and supported by another increase in new export orders during the month. Higher new work inflows was as a result of expansion by companies, improved marketing strategies, and the introduction of new products.  

The rate of job creation accelerated for the second straight month, contrasting with slowdowns in growth of output and new orders. Meanwhile, backlogs of work fell for the second time in the past three months. 

Cost Pressure

On the price front, cost pressures intensified for the second month in succession, with May’s increase in input prices the sharpest recorded since last July. With salaries rising only modestly, a strong rise in purchase prices was the principal contributor to the overall expansion.

Monitored firms commented on higher raw material costs, in particular food and energy, while a depreciation of the shilling against the US dollar was also mentioned. Subsequently, output charges rose at the quickest rate in 14 months.