DECEMBER SURVEY COMPLETES STRONG YEAR OF GROWTH FOR KENYAN BUSINESSES

Key findings:

• Output and new orders continue to rise sharply
• Backlogs decline for the first time since July
• Input price inflation softens to five-month low

Kenyan private sector businesses enjoyed a solid improvement in operating conditions during December. Output and new orders recorded further sharp increases, with the latter growing at a faster rate than in November. Employment growth also improved, while input buying expanded sharply. At the same time, cost inflation weakened to the least marked in five months, with output charges also seeing a softer increase.

The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI™). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.

At 53.6 in December, the headline PMI rose from November’s reading of 53.1, signalling a solid advancement in Kenya’s private sector economy. The latest survey confirmed a full calendar year of growth and one where the average PMI reading was the strongest since 2014.

New orders at Kenyan businesses continued to rise sharply, with the pace of increase slightly faster than in November. Similarly, export orders expanded at a substantial rate, indicating that firms were buoyed by an influx of both domestic and overseas demand.

Consequently, firms raised activity levels at a market rate, although the latest increase was the softest in three months moreover firms were able to raise activity sufficiently to lead the first fall in outstanding business since July. Panelists reported a concerted effort to clear backlogs.

Staffing levels recorded a modest rise during December. Employment growth was driven by an increase in casual workers in line with the rise in new orders. Alongside this, supply chains maintained a strong efficiency, with delivery times decreasing at a sharp rate.

Purchasing activity grew substantially during December, due to the further expansion in new orders. However, the rate at which purchases increased was the second-weakest seen over the course of 2018. Likewise, stocks of purchases rose at a slower, but still marked, pace.

On the price front, Kenyan private sector firms reported a softer rise in overall input prices in December. In fact, pace of the increase was at a five month low with only around the 14% of panelists seeing costs increase.

Where costs did rise, firms pointed to higher transportation and food costs, as well as a sharper increase in salaries.
Staff costs rose as firms reported dividing profits earned from the recent sales growth.

Finally, companies responded with a softer markup in output prices during December, as the respective index fell to its lowest since August. Despite the increase in demand, respondents found that they were able to ease price inflation at the end of the year.