Private sector activity falls to its lowest since November 2017

Private sector activity has fallen to its worst level since November 2017 as companies struggle under the weight of renewed global volatility and weak domestic demand.

According to data from the Stanbic Bank’s February Purchasing Managers Index (PMI) which tracks business activity in the country, the headline figure derived from the survey of firms fell to 49 from 49.7 points in January.

The slowdown in activity is largely attributable to weaker demand as the recent Coronavirus outbreak which has marked shortages of raw materials available to domestic industries.

The output index fell for the second consecutive month in 2020 to align to contracting private sector activity.

Moreover, firms have faced weaker demand for goods and services as households continue to struggle with weak cash-flows adding to the notable decline in activity.

“Firms faced a shortage of raw materials owing to reduced imports from China due to the coronavirus outbreak over the past month. This has increased output prices as alternative import markets aren’t as cheap as China,” said Stanbic Bank Regional Economist for East Africa Jibran Qureishi.

New orders by local firms fell to their weakest in over two years to reflect on the sharp easing in demand.

New export orders were meanwhile at their weakest in six months as the struggling economy took a further hit from unfavourable Forex rates. Sustained demand from the United Arab Emirates and Saudi Arabia however propped sales to keep exports on the positive over the period.

The quantity of goods purchased domestically further remained subdued but stayed on the positive.

Meanwhile purchase prices rose to a seven-month high as companies raised output prices to maintain profit margins as the monthly inflation charge grew to its fastest since July 2019 as February inflation hit a 10-month high rate of 6.37 percent.

Nevertheless the future output index jumped to an all-time high with companies maintaining optimism for near-term growth including hopes to introduce new products, the opening of new branches and expansion into foreign markets.

As such, input spending surged for the 27th-month running on the hope for a rebound in the near future as firms intensified efforts to clear order backlogs to see employment in the month at its strongest since November last year.

Vendor performance during the month was meanwhile on the rise with suppliers raising competition among themselves.

The growing threat of the Novel Coronavirus is however an imminent threat to the anticipated growth of domestic businesses in the near-term with the containment of the outbreak uncertain.

“Unfortunately, at this point in time, it’s difficult to assert whether we are at the beginning, middle or end with the coronavirus due to scant and inadequate data points. A scenario where the virus is contained in the next couple of months is probably the best case,” added Mr. Qureishi.

“However, in the event that there is an escalation into new geographies with the disruption potentially extending into the third quarter of 2020, the likelihood of a global recession then increases”