The health of Kenya’s private sector sharply deteriorated during August marking the worst performance in Stanbic Bank Purchasing Manager’s Index (PMI) short survey history mainly as a result of election jitters, latest  data indicates.

The fall was driven by sharp falls in output, new orders and stocks of purchases. In response to lower output requirements, firms reduced their payroll numbers. On the price front, divergent trends were observed as overall input costs rose, while firms continued to reduce output charges, Stanbic Bank says.

The seasonally adjusted PMI fell to a survey-record low of 42.0 in August from 48.1 in July. This was consistent with a sharp deterioration in business conditions across Kenya’s private sector. The headline PMI index has now recorded below the 50.0 no-change mark for five of the past six months

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

Commenting on the survey findings, Jibran Qureishi, Regional Economist EA at Stanbic Bank said: “The Stanbic Bank PMI fell to another survey record low of 42.0 in August and has now been in contractionary territory, for four consecutive months. Notably, the anxiety around a tense general election in August was one of the major factors that weighed down the private sector; however this angst is likely to extend over the coming months due to the recent decision by the Supreme Court to nullify the presidential election results.”

“The decision by the court is indeed a reflection of Kenya’s strengthening institutions and will certainly appease the foreign investor community. That said, as we have been pointing out previously, the promise of the private sector remains under risk should the ease of access to credit remain a challenge. Yet, a stronger EUR currency will probably be quite beneficial for horticultural earnings while tourist arrivals are probably likely to increase further as political temperatures eventually cool down after the re-run of the presidential elections,”  Qureishi added.

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The main findings of the August survey were as follows:

The overall downturn was driven by a fall in business activity. Output fell for the fourth month in succession. Moreover, the rate of contraction was the sharpest recorded since the inception of the survey in January 2014. Low money circulation and weak demand conditions were the key reasons cited by panellists behind a fall in output.

New orders fell for the first time in the survey’s history. Also, the rate of contraction was sharp overall. Firms attributed a decline in domestic demand to a lower customer turnout due to the political climate and weaker purchasing power among clients. New export orders fell for the first time in over three years as international demand for Kenyan goods and services was reduced.

Employment in the Kenyan private sector fell during August, the first decline in the survey history. The rate of job shedding was marginal, however. A number of monitored companies commented on weak demand and staff voluntarily leaving for better job opportunities.

Purchasing activity in the Kenyan private sector decreased for the second month in succession during August. The rate of contraction was the fastest recorded in the survey’s history. Subsequently, inventories held by private sector firms contracted during August.

On the price front, divergent trends were observed across the Kenyan private sector. Firms continued to offer discounts despite greater cost pressures. The rate of decline in output charges was modest, but the fastest observed in the survey’s history. The rise in overall input costs reflected higher purchasing and staff costs. The rate of inflation eased to the slowest since June 2016 and was weaker than the long-run average, however.