Inside Politics

Index: Private sector growth drops on virus resurgence

Monday, December 7th, 2020 00:00 |
Economic growth. Photo/Courtesy

Steve Umidha and John Otini

Kenya’s private sector recorded a surprise decline in general performance in November as businesses lost ground amid concerns over resurgence of the Covid-19.

According to the latest Purchasing Managers Index (PMI, lack of new orders saw the private sector economy take a beating as the second wave of infections forced breaks on spending.

This saw less people being employed uring the period under review after massive layoffs that began in the month of March leaving many without jobs.

“Lower  capacity  pressures  meanwhile  led  to  a  stalling  of  workforce  expansion, most  notably, the 12-month outlook slipped to its weakest  in  the  series  history,” said Stanbic Bank in the latest PMI report.

The bank foresees an even softer  growth  outlook  due to the rising infections of the coronavirus disease.

“The situation is so dire I don’t see any growth in the coming weeks, December is usually a period for growth due to the festivities but this time it will be worse,” said John Kirimi, analyst and former head of Sterling Capital.

Surge in infections

Kirimi said when people are allowed to travel upcountry this month, there will be a surge in infections and this could worsen the general economic situation.

“The month of January will suffer liquidity issues as parents spend money on school fees, the semblance of growth may appear in the month of February,” said Kirimi.

The  headline  PMI  fell  dramatically  from  a  survey  record  of  59.1  in  October  to  51.3  in  November, to signal a much softer and only modest  improvement  in  overall  business  conditions. 

The headline figure also called the    Purchasing    Managers’    Index shows improvement or slowdown in activities.

Readings  above  50.0  signal  an  improvement  in  business  conditions  on  the  previous  month,  while  readings  below  50.0  show a deterioration.

Businesses are however optimistic that output will rise over the coming year, however, with about one-in-four businesses remaining positive.

According to panellists informing the report, plans for business expansion underpinned hopes for stronger activities.

Business expansion

“Key to the slowdown were weaker increases in business activity and sales, as firms commented on issues with money circulation and economic stress caused by a rise in local Covid-19 cases.

Reintroduced curfew measures meanwhile led to a drop in client demand at some businesses, while lockdowns in Europe curtailed growth in foreign new orders,” the survey noted. 

With taxes waivers expiring back in January, SMEs will have a new challenge to deal with if the infections do not recede.

Demand  for inputs meanwhile  rose  at  the  slowest  rate  for  three  months,  leading to a softer expansion in stock levels. 

The index shows that purchasing   costs   continued   to   rise   in   November,  although  the  rate  of  inflation softened for the first time in six months, and to  a  moderate  pace.  

Employees continued to suffer as salaries  decreased slightly from the October rates after many Kenyans lost jobs and some went on paycuts. 

Despite  a  rise  in  overall  costs,  average  prices  charged  by  Kenyan  firms  declined, as some firms highlighted efforts to improve sales by giving discounts. The overall fall in charges was only marginal though. 

Worries over a rise in Covid-19 cases and new curfew measures spurred weaker growth prospects, although many  businesses  still  reported  plans  for  expansion.

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