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Corporate leaders have signalled plans to expand businesses in the next one year for the first time in six months, pointing to an uptick in economic prospects on falling costs and interest rates.
The findings of Stanbic Bank Kenya’s Purchasing Managers Index (PMI) for October suggests confidence among business leaders in future growth has started picking up.
A majority of firms surveyed indicated they plan to invest in new branches and ramp up budgets for marketing campaigns to boost sales in anticipation of greater demand for goods and services in the year ahead.
“For the first time since April, the Future Output Index rose month-on-month during October. Firms anticipating an expansion in output often noted plans to open new outlets. Investment into products, marketing and digital platforms were also mentioned,” analysts at Stanbic Bank and American analytics firm, S&P Global, wrote in the PMI report for October.
Businesses and households have been battling a biting lack of money in circulation in a softening economic setting for the better part of the year, a situation which was from June compounded by political instability that followed deadly youth-led protests against new taxes and bad governance.
That exacerbated economic uncertainty with consumers delaying spending decisions, hurting sales and prompting companies to slow down output. The optimism came in a month when overall activity grew for the first time in three months, albeit marginally. The PMI for October, based on feedback from about 400 panellists, rose marginally to 50.4 from 49.7 in September.
That signals a recovery in key indicators such as output, new orders and employment because PMI readings above 50 denote expansion and those below points to a contraction compared with a month earlier.
“According to surveyed businesses, rising sales and greater client interest drove the increase in activity in October. That said, the overall uplift in sales was only fractional, as many firms continued to struggle with cash flow constraints, tough economic conditions, rising costs and political uncertainty,” wrote the research analysts.
“The slight rise in output at Kenyan firms led to a similarly mild uptick in employment levels. Nonetheless, this marked the first instance of workforce growth since July, which allowed for a fresh depletion of backlogs of work.”
The recovery in private sector activity came in a month when average prices of goods and services, technically called inflation, rose 2.7 percent compared with the year before —the softest growth since May 2007. This was largely on a modest 4.3 percent rise in average prices of food items compared with 7.9 percent a year earlier, while fuel prices fell 1.7 percent from 13.1 percent jump.
The falling inflation will put pressure on the Central Bank of Kenya’s Monetary Policy Committee to further cut base interest rates in its next meeting in December, helping raise private sector credit and improve circulation of money in the economy.
Banks have come under pressure from President William Ruto and his Treasury Cabinet secretary John Mbadi for largely not transmitting the signal the regulator gave from early August when it started lowering the benchmark interest rate.
Cutting the key lending rate is expected to lower cost of borrowing as commercial lenders use the rate as a base onto which they load their margins and risk profile of individuals when pricing loans.
Resultant drop in cost of loans are expected to prompt consumers to take up funds for investment and consumption, boosting economic activities.
“Lending to the private sector is one assignment that I would like to give you (banks). Private sector credit only grew by 1.3 percent in August which is insignificant,” President William Ruto told bankers mid-October.
“We want the private sector to do more and we know what we need to do as the public sector. We will do our part, you do yours.”
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