Business conditions improve as unemployment rate remains stagnant, PMI Index shows

Business conditions in Kenya’s have improved, driven by the country’s growing private sector which picked up in July. Though unemployment has remained stagnant, business conditions improved at a faster pace, the latest Purchasing Managers’ Index (PMI) data released by financial services group, CfC Stanbic Bank and market research firm, IHS Markit has shown.

“The Kenyan private sector regained momentum in July after dropping to a survey record low in the previous month. Indeed, the chief driver of this rebound was a sharp rise in new orders,” Jibran Qureishi, Regional Economist E.A at CfC Stanbic Bank said. “This was largely down to robust domestic demand as export growth trended sideways probably due to suppressed global growth. Not surprisingly, the impact from the Brexit vote could continue to weigh down export growth,” Qureishi, added.

Purchasing Managers’ Indexes (PMI) are economic indicators derived from monthly surveys of private sector companies. PMI uses values ranging from 1 to 100, much like percentage points. After having dropped to a survey-record low of 51.5 in June, the seasonally adjusted PMI signaled a rebound in growth during July. At 53.3, the latest reading pointed to a solid improvement in business conditions, albeit one that was weaker than the series trend (54.8).

Commenting on July survey findings Qureshi noted that firms also voiced concerns around cost pressures owing to the newly introduced tax measures in the budget.

“However, these pressures could be relatively muted going forward as international oil prices continue to remain benign and the exchange rate also remains broadly stable. Nonetheless, the government’s expansionary fiscal policy could begin to kick-start economic activity and support economic growth in the second half of 2016,” he said.

June had seen the overall rate of expansion ease to a record low but the slowing trend was reversed in the latest period, helped by sharper rises in output and new work. Notably, new orders rose at a marked pace in spite of a stagnation in exports. Employment barely increased, however, suggesting that firms remain cautious about the sector’s longer term outlook.

The survey found that higher new work was the main driver of private sector expansion in July with new businesses rising at the quickest rate in three months.

Output rose solidly in July, following a negligible expansion in the previous month, albeit at weaker levels than that seen for new work and below the series average. Purchasing activity also increased, and at a faster pace with news new business gains being the key factor behind the rise.

“This enabled firms to build up their stocks of pre-production items. This inventory building is probably due to expectations of future improvements in demand,” Qureishi said.

Job creation almost stalled in July, however. The rate of hiring eased to the weakest in 31 months of data collection so far.

“On the price front, both input costs and output charges rose more quickly than in June. The respective increases had neared stagnation at the end of the second quarter, but the latest rises were solid. Costs rose on the back of high taxation and this fed through to charges in a number of cases,” stated the report.

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