Kenya’s economic activity moved at a sluggish pace in September as rising fuel prices and a rapidly depreciating Kenya Shilling exchange rate against the US dollar, hurt businesses and consumers.

According to the September 2023 Stanbic Bank Kenya Purchasing Managers Index (PMI), firms recorded a contraction in new orders and lower sales, leading to a cut in outputs, employment levels, and inventories. Kenya’s private sector economic activity, as measured by the index, thus dropped from 50.6 to 47.8, indicating a moderate deterioration.

Selling charges were meanwhile raised sharply, as firms looked to pass costs through to customers.

“The September Purchasing Managers Index (PMI) implies slower economic growth momentum after the positive performance in August. There was a notable contraction in output and new orders by the private sector in September, a scaling back of purchasing activity, and a slight drop in employment levels across all sectors other than agriculture,” said Christopher Legilisho, Economist at Standard Bank.

He attributes the slowdown in Kenya’s growth momentum to a hike in fuel pump prices having increased by the Energy and Petroleum Regulatory Authority (EPRA) by an average of KSh23.80 as well as tax increases that have hurt consumer demand.

Output and new order volumes both declined for the seventh time in eight months over the course of September. As seen in recent months, survey participants largely attributed the contractions to rapid price increases, which led to both intense cost pressures and a drop in customer demand.

Looking ahead, firms maintained positive expectations for future activity. Overall, 19% of survey respondents forecasted output to grow over the coming 12 months, with panel reports mainly linking this to expansion plans.

Despite reduced output, manufacturing firms are the most optimistic about the outlook, whereas wholesale and retail firms are the least. Indeed, inflationary pressures persist, with both input and output prices still elevated – 42% of surveyed firms reported higher costs, often because of the deteriorating exchange rate.

“The September PMI paints a grim picture, and there may well be further near-term exchange rate depreciation despite recent positive reforms. However, we still foresee resilient GDP growth of 5.5-5.8%, led by agriculture,” said Legilisho.