Private sector activity on the up for the first time in seven months

Stanbic Bank's PMI shows there was an improvement in the health of the private sector for the first time since January this year. [File, Standard]

Private sector activity in Kenya posted an improved performance in August for the first time this year.

This is as employment expanded for the sixth consecutive month and also grew at the fastest pace in two years.

The Stanbic Bank's Purchasing Managers Index (PMI) shows there was an improvement in the health of the private sector for the first time since January this year.

It noted that output and new orders returned to expansion territory amid greater political stability.

Job creation and purchasing activity also picked up, while firms grew more confident about their output prospects.

"That said, the improvement in business conditions was only mild and continued to be weighed down by elevated price pressures. Indeed, input prices continued to rise at a historically strong pace, leading to the fastest increase in selling charges since June 2022," says Stanbic in the report released earlier this week.

Headline PMI stood at 50.6 in August. Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration.

"At 50.6 in August, up from 45.5 in July, the headline PMI signalled an expansion in business conditions for the first time since January. However, the index was only slightly above the 50.0 mark, indicating that the expansion was only marginal," says the report.

The recent anti-government protests, the high cost of living and a weak shilling are among the factors that have seen a deterioration in private sector activity this year.

But a return to calm in recent months has helped to boost demand and led to higher activity, especially in the services and manufacturing sectors, where growth resumed.

"Similarly, inflows of new work expanded over the course of August, bringing to an end a six-month sequence of decline. However, the rate of growth was only fractional, as improvements arising from reduced political unrest and stronger demand conditions were almost completely offset by the negative impact of price increases," says Stanbic.

"Moreover, August survey data signalled that inflationary pressures were still historically marked and continued to hit business expenses. Nearly 38 per cent of firms saw a monthly rise in their input costs, marking one of the sharpest rates of cost inflation in the survey's near-decade history. Panellists often linked higher costs to sustained currency weakness, although increased fuel prices and higher taxes were also mentioned."

The survey also shows firms continued hiring for a sixth successive month in August, which marked the longest run of expansion since the beginning of 2022. "Moreover, the latest increase in staffing was solid and among the quickest recorded for two years. Anecdotal evidence indicated that firms hired new workers to boost existing teams and support sales activities," says the report.

Economist at Standard Bank Christopher Legilisho notes that the August PMI implies economic growth recovering compared to July as well as a likely positive economic performance in the third quarter of this year.

"There was a notable expansion of output in August, specifically in services and manufacturing. New orders too ticked up in August, with export orders received by firms rising for a sixth straight month. Firms noted that improved food supply, increased marketing of products and a calm political environment supported new orders and growth," he says.

"However, tough business conditions and inflation pressures remain a pressing concern for Kenyan businesses, as input prices and staffing costs were seen rising due to a weaker exchange rate as well as higher taxes related to the recently enacted tax measures in the Finance Act."