Record fall in business morale deepens concern about economy

A fruits vendor in Kisii. A recent survey conducted by Stanbic Bank found that agriculture, wholesale, retail, and services sectors have continued to declined. [File, Standard]

The private sector is facing increasing headwinds, with a record decline in business morale, raising concerns about the country’s economic outlook.

A recent survey conducted by Stanbic Bank found that businesses have frozen hiring and are increasingly fearful of job losses as consumer demand remains weak with the majority of businesses fretting about their future.

The Stanbic Bank Kenya PMI® for September fell below the neutral mark, indicating a deterioration in business conditions.

The decline was driven by a reduction in sales, which led to a renewed cutback in activity.

While input or raw materials prices have eased, businesses say they remain cautious about the future.

According to the survey, many firms are holding back on hiring with 96 per cent of surveyed businesses indicating stable employment levels, reflecting little need for new staff amid softening capacity pressures.

This suggests that businesses are holding onto their existing lean workforce.

However, the future remains uncertain, with only four per cent of businesses expecting an upturn in the coming year, dealing a blow to many unemployed Kenyans for new jobs and incomes.

The decline in business morale is a major setback for the Kenyan economy, which has been struggling to recover from the disruptions caused by the Covid-19 pandemic and recent protests.

Analysts said yesterday the newly reorganised Ruto government will now need to take urgent steps to boost subdued consumer confidence and stimulate economic growth.

As the economy heads into the final quarter of the year, the mounting concerns over business activity and employment levels underscore the challenges facing Kenya’s economic recovery economists said.

“Business conditions contracted slightly in September,” said Christopher Legilisho, Economist at Standard Bank after the survey published Thursday. “New orders and output were weak due to subdued consumer demand.”

The PMI’s drop follows a brief recovery in August, which saw a temporary uptick after disruptions caused by the Gen Z-led protests against a slew of taxes and a cost of living crisis.

However, according to the regular survey, September’s figures suggest that Kenyan businesses are facing renewed challenges, with a marked reduction in sales leading firms to freeze hiring and raise fears of job losses.

According to the survey, businesses reported a slight contraction in output and new orders, attributed to economic difficulties faced by clients, including reduced cash flows.

While some sectors, notably manufacturing and construction, experienced improved sales, the agriculture, wholesale, retail, and services sectors saw continued declines.

With consumer demand softening and business confidence at a decade-low, the outlook for the Kenyan economy appears increasingly uncertain, the survey shows.