Kenya’s private sector shrinks in January for 1st time in 9 months

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Business activity in Kenya’s private sector shrank in January for the first time since April 2019, with output falling at the sharpest pace in more than two years, a survey showed on Wednesday.

The Stanbic Bank Kenya Purchasing Managers’ Index (PMI), which covers Kenyan private economy, fell to 49.7 in January from 53.3 in December 2019. Readings above 50 indicate expansion while readings below point to contraction.

The survey said the weakness in business performance was largely due to soft domestic demand and poor weather conditions. Growth in new orders and employment slowed in January, but business confidence for future output soared to a near-record level.

“Despite the slow start to the year from the private sector, there are reasons to be optimistic for the year ahead,” said Jibran Qureishi, regional economist at Stanbic Bank, adding that some of the recent reforms such as the repeal of the interest rate capping law and ongoing clearance of private sector arrears should underpin activity going forward.

Data from Kenya National Bureau of Statistics showed that Kenya’s economy expanded 5.1 percent year-on-year in the third quarter of 2019, compared with 6.4 percent in the same period in 2018, as growth in most of the sectors of the economy decelerated. The country’s gross domestic product grew by 5.4 percent in the first three quarters of 2019.

The Central Bank of Kenya lowered its benchmark lending rate for the second straight time of Monetary Policy Meeting on January 27, cutting the rate by 25 basis points to a nine-year low of 8.25 percent. The previous meeting in November 2019 had the benchmark rate lowered by 50 basis points, the first cut after holding it for seven straight meetings.

The central bank said the economy was operating below potential and there was room for further accommodative monetary policy to support the economic activity.

The World Bank said in its January Global Economic Prospects report that Kenya’s economic growth is expected to remain solid, but soften somewhat as accommodative monetary policy doesn’t fully offset the impact of a fiscal tightening. The institution said Kenya’s growth is expected to pick up to 6 percent in 2020 from an estimated rate of 5.8 percent in 2019. Enditem

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