September report points to a recovering private sector

September saw a strong upturn in Kenyan private-sector output as observed in the latest Purchasing Managers’ Index (PMI) survey data by Stanbic Bank.

In the month, growth reached the most marked for nearly two-and-a-half years as the government relaxed Covid-19 restrictions.

Posting at 56.3 in September, the headline PMI was up to its highest reading since April 2018, and indicated a sharp improvement in the health of the private sector economy. The index rose from 53.0 in August and marked the third successive expansion since the downturn caused by the COVID-19 outbreak.

Readings above 50 signal an improvement in business conditions on the previous month, while readings below 50 show a deterioration.

According to the report by Stanbic Bank, customer demand expanded at the sharpest rate since January 2016, leading to a quicker rise in backlogs. As a result, job numbers were broadly stable after falling in the six previous months.

Nevertheless, future expectations dipped to their lowest since the series began in 2014.

“With the government easing lockdown restrictions during the third quarter of the year, firms saw a release of pent-up demand as clients largely returned to markets. New orders grew for the third month running, helped by a further increase in foreign orders, particularly from Europe and the Middle East,” reads the report.

“Notably, the rise in total sales was the strongest since January 2016. Subsequently, output levels expanded at a sharp pace in the latest survey period, with companies also steeply increasing the volume of inputs purchased. Suppliers were able to deliver more quickly for the fourth month in a row, although the rate of improvement was hampered by traffic issues and the short supply of some products.”

Rising demand led to a solid uptick in backlogs of work during September, which led some firms to hire new workers. This counteracted job cuts at other firms, amid efforts to reduce expenses.

“As such, employment was broadly level during the month, following a six-month run of decline. Input cost inflation softened in September but remained solid overall as firms cited price rises for fuel and commodities, in addition to higher logistics costs. Firms often passed these costs onto customers, as output charges rose for the third month in a row.”

Despite stronger growth, the report noted that companies were less confident about the 12-month outlook in September.

The level of sentiment was the weakest in the series history, with only 27 per cent of panelists expecting output to continue expanding. Despite plans to raise investment and open into new markets, firms were concerned that the economy could face a further setback from the pandemic.