Businesses in Kenya were hit by low sales in February as disposable income was swallowed up by higher prices and even as the country witnessed a general decline in the volume of money in circulation.
This forced businesses to cut on output, which saw Stanbic Bank’s Purchasing Managers’ Index (PMI) decline below the benchmark of 50 points for the first time in six months indicting contraction in the economy, last seen during the elections last year.
Stanbic PMI index dropped to 46.6, a sharp slide from an 11-month high of 52.0 in January amid reports that cost-of-living pressures and cash flow problems had stunted customer spending.
Businesses are also taking a hit on currency weakness and increased tax burdens that has pushed input costs to the highest increase in almost a decade.
“A lack of money in circulation was also cited by survey respondents. Four of the five monitored sectors saw new orders decrease, with particularly sharp falls seen in manufacturing and wholesale & retail. Agriculture was the only sector where sales increased,” said Mulalo Madula, Economist at Standard Bank.
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Around 38 per cent of polled business noted their business activity had dropped in February on low demand linked to stunted consumer demand.
Demand is declining as companies increase their prices to reflect the cost of business that has seen input cost inflation rise the sharpest rate in the survey’s history.
Over a third of polled businesses said their costs increased since the previous month with construction witnessing the most pronounced rise in input prices in February.
High business costs is being driven by push of the Kenyan government that has stepped up push to increase taxes, reinstated mobile money charges from banks to mobile even as the country is hurting from higher cost of food due to ongoing drought.
The cost of living crisis is pushing Kenyans price elasticity limits that has sent new orders falling.