Index: Private sector growth drops on virus resurgence
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.
“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.