Firms in Kenya report subdued activity in third quarter

The latest CEO survey conducted by the Central Bank has revealed that top executives of manufacturing companies reported a decrease in demand for their products throughout the three months leading up to September.

Consequently, these companies experienced lower production volumes and greater unused capacity than expected for that particular quarter.

In the services sector, business activity remained lackluster, with prices for essential inputs remaining high, mainly due to the weakening shilling and elevated input expenses. The survey also noted that some companies struggled to retain their customer base as they grappled with narrow profit margins.

This survey, conducted before the Central Bank’s Monetary Policy Committee meeting, aimed to capture CEOs’ perceptions of business activity in the third quarter of 2023 compared to the second quarter, highlighting subdued activity due to soaring input costs and weakened consumer demand.

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Rising production costs

Additionally, this week, the MPC chose to maintain the Central Bank Rate (CBR) at 10.50 percent for the second consecutive time, following an increase in June from 9.50 percent.

Nevertheless, businesses within the agriculture sector experienced a surge in demand and production levels, thanks to favorable weather conditions, with exports benefiting from increased demand in certain markets. However, the prices of goods remained high due to rising production costs.

During the MPC briefing, CBK Governor Dr Kamau Thugge highlighted concerns expressed by survey respondents, including higher fuel and electricity prices, reduced purchasing power impacting product demand, and potential negative effects from the El Niño weather phenomenon.

According to the Central Bank, across all sectors surveyed, company chief executives reported that elevated prices for goods and services persisted throughout the three months leading up to September.

Notably, in the agriculture sector, the regulator’s survey conducted in September highlighted the ongoing influence of weather conditions, transportation, and input costs on both the output and prices of key food items in the country.

The survey aimed to gather CEOs’ outlook on business activity in the fourth quarter of 2023 compared to the third quarter. CEOs generally anticipate an improvement in business activity for Q4, with a majority of respondents indicating that they expect increased or unchanged volumes of business activity.

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