In September, Kenya experienced a sluggish economic pace, with rising fuel prices and a rapidly depreciating Kenyan Shilling exchange rate against the US dollar taking a toll on businesses and consumers.
According to the September 2023 Stanbic Bank Kenya Purchasing Managers Index (PMI), businesses faced a contraction in new orders and lower sales, leading to reductions in outputs, employment levels, and inventories. The private sector’s economic activity in Kenya, as measured by the PMI, dropped from 50.6 to 47.8, indicating a moderate deterioration.
In response to these challenges, firms sharply raised selling charges, aiming to pass on the increased costs to customers.
Christopher Legilisho, Economist at Standard Bank, commented on the situation, saying, “The September Purchasing Managers Index (PMI) implies slower economic growth momentum after the positive performance in August. There was a notable contraction in output and new orders by the private sector in September, a scaling back of purchasing activity, and a slight drop in employment levels across all sectors other than agriculture.”
The slowdown in Kenya’s growth momentum can be attributed to the recent hike in fuel prices by the Energy and Petroleum Regulatory Authority (EPRA), averaging KSh23.80, as well as tax increases that have dampened consumer demand.
During September, both output and new order volumes experienced declines, marking the seventh time in eight months. Participants in the survey predominantly attributed these contractions to rapid price increases, which not only exerted intense cost pressures but also resulted in reduced customer demand.
Despite these challenges, firms maintained positive expectations for future activities. Approximately 19% of survey respondents anticipate output growth over the next 12 months, often citing expansion plans as the driving force behind this optimism.
Manufacturing firms, despite reduced output, exhibit the most optimism about the future, while wholesale and retail firms express the least. Inflationary pressures continue to persist, with both input and output prices remaining elevated. An impressive 42% of surveyed firms reported higher costs, often linked to the deteriorating exchange rate.
Legilisho concluded with a forward-looking perspective, stating, “The September PMI paints a grim picture, and there may well be further near-term exchange rate depreciation despite recent positive reforms. However, we still foresee resilient GDP growth of 5.5-5.8%, led by agriculture.”
