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Private firms paused hiring or firing staff in September on falling demand for goods and services, reflecting the impact of a softening economy plagued by depressed money circulation.
The Stanbic Kenya Purchasing Managers Index (PMI), based on feedback from about 400 panellists, suggests companies kept staff numbers unstable in anticipation of a pick-up in sales as living costs pressures show signs of easing.
This came on the back of layoffs in August due to economic uncertainty that followed months of deadly youth-led anti-government demos against higher taxation and poor governance.
“Adjusted for seasonal influences, the Employment Index posted on the 50.0 no[1]change mark in September, indicating stable staff numbers across the private sector economy,” analysts at Stanbic Bank and American analytics firm, S&P Global, wrote in the PMI report for September.
“Several businesses signalled that lower sales volumes discouraged them from hiring extra labour or replacing job leavers. Overall, 96 percent of panelists registered no change in employment since August,” the survey said.
The monthly survey — which measures the performance of key indicators for the private sector such as output, new orders, and employment — showed activities deteriorated slightly in the review month compared with August.
This is after the PMI dropped slightly to 49.7 in September from 50.6 a month earlier. Readings below 50 signal a decline in month-on-month private sector deals while levels above point to growth.
Evidence drawn from the panellists who participated in the monthly survey suggested the contraction in private sector conditions was largely because of “economic challenges” for businesses and households, slowing sales and prompting firms to cut back on output.
Wholesale and retail, agriculture, and services sectors posted a drop in business in September compared with a month earlier, the report suggests, while activities in manufacturing and construction sectors edged up. Businesses have, however, been stocking up since the anti-government protests started fading in anticipation of sales strengthening in the coming months.
“Positively, employment in the private sector stabilised in September, after declining in August, while firms noted higher inventory stocks held as well as input purchases made, reflecting expectations for demand conditions improving in the fourth quarter[October to December],” Christopher Legilisho, chief economist for South African-based Standard Bank, the parent firm of Stanbic Bank, wrote in the PMI report.
“Furthermore, there was a moderation in the expansion of purchase prices and wages in September, reflecting stable input prices for most businesses. Notably, the exchange rate and fuel prices have stayed unchanged over the past two months, as reflected in the survey.”
Businesses and households have been battling a biting lack of money in circulation for months following deadly protests, which created economic uncertainty, delaying consumer spending decisions.
The resultant political jitters, which shook President Willaim Ruto’s administration, exacerbated cash flow challenges because of rising interest rates amid elevated living cost pressures.
The countrywide protests prompted Dr Ruto to drop the Finance Bill 2024 and dismiss about half of his Cabinet.
The demos, which were allegedly infiltrated by hired goons, paralysed businesses in major urban centres on the day of demonstrations, with hundreds of retail stores looted during the peak on June 25.
Panellists in the PMI report said sales were gradually improving going forward “amid greater customer turnout, higher investment and a positive impact from marketing”.
The Central Bank of Kenya’s Monetary Policy Committee is expected to cut base lending rates when it sits on Tuesday next week, signaling lenders to start cutting the cost of loans after September inflation slowed to its lowest levels since December 2012.
Lowering the cost of borrowing is expected to boost demand in a softening economy, hurt by high interest rates that were imposed to tame inflation.
The MPC cut the Central Bank Rate by 25 basis points to 12.75 percent during the last meeting on August 6.
Before cutting the CBR in August, the MPC had raised the rate by 5.5 percentage points since the tightening began in May 2022 through July 2024 to manage inflationary expectations by keeping the cost of borrowing elevated.
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