Businesses cut output as economy suffers worst hit

A woman sells lemons and ginger along Tom Mboya street in Nairobi. [Stafford Ondego, Standard]

The Kenyan economy suffered its worst decline yet in January, forcing firms to cut output due to a lack of customers.

The tough business environment was worse than that seen in April 2021 and during the second quarter of 2020 as captured in the latest Stanbic Purchasing Managers Index (PMI), which fell for the first time in nine months.

“Economic activity started 2022 on a subdued note as evidenced by the Stanbic PMI reading that fell to the lowest level in nine months. The reading was below 50, which indicated a deterioration in business conditions from December,” said Stanbic Bank Fixed Income and Currency Strategist Kuria Kamau yesterday.

Readings above 50.0 show an improvement in business conditions on the previous month, while anything below that shows a deterioration. Mr Kamau explained that while export demand grew marginally, domestic demand fell significantly as client spending was negatively affected by rising inflation and a resurgence in Covid-19 due to the Omicron variant.

This saw Kenyan firms scale back on output for the first time since last April. There was also a reduction in inventory levels, with firms indicating a decrease in purchasing activities. 

“As a result of the lower demand, firms were forced to reduce their output and purchases of raw materials for the first time since April 2021,” said Kamau. 

Employment growth was at the slowest pace in six months.  “Employment numbers rose for the ninth consecutive month in January, helping firms to lower their backlogs of work again. However, the drop in sales meant that the pace of job creation slowed to the weakest since last July,” noted the Stanbic report.