The Stanbic Bank of Kenya's latest Purchasing Managers' Index™ (PMI®) data reveals a substantial downturn in Kenyan business activity in June, influenced by ongoing economic challenges, widespread protests, and uncertainties surrounding the Finance Bill 2024.

The headline PMI fell to 47.2 in June, dropping below the neutral 50.0 mark for the first time in seven months.

This decline is stark in contrast to May’s 16-month high of 51.8, indicating a significant deterioration in the health of the private sector.

The fall in the PMI was driven by the steepest drops in activity and new work since November last year.

Survey data collected between 12th and 26th June showed that challenging economic conditions, heightened by the cost-of-living crisis and protests against the Finance Bill 2024, severely impacted sales volumes.

Christopher Legilisho, an Economist at Standard Bank, noted, "Customers delayed spending decisions in the face of such uncertainty."

Most sectors, with the exception of manufacturing, reported a contraction in output.

Manufacturing was the only sector to record growth in June, providing a partial buffer against the overall downturn.

The difficult conditions led to a reduction in purchasing activity, marking the first decline in three months and resulting in a fresh reduction in inventories.

Despite the overall downturn, employment numbers continued to rise for the sixth consecutive month, though at the weakest pace seen this year.

Improved supplier performance was noted due to greater raw material availability and increased competition among vendors, yet the reduction in delivery times was the least marked since February.

Input prices saw a slight increase following two months of back-to-back declines, although the rate of inflation remained mild.

Higher product taxes were commonly cited as a factor driving up costs, but this was somewhat offset by lower fuel prices and stronger exchange rates.

Consequently, the rate of input price inflation was modest, significantly softer than in the past four years.

Business expectations for future activity fell to a four-month low, as firms expressed less optimism about their sales and output forecasts.

This reduced optimism was attributed to the ongoing economic challenges and the potential negative impact of proposed tax increases in the Finance Bill 2024.

"In June, momentum in private sector activity declined, reflecting several concerns, top of the list being the proposed increase in taxes via the Finance Bill 2024, and the widespread protests in response," added Legilisho.

"Despite the recent upheaval, it was notable that job creation improved for a sixth month running as firms increased capacity despite the dip in overall activity."

The PMI data highlights the fragile state of Kenya’s economy, with businesses navigating through a tumultuous period marked by economic and political challenges.

The findings underscore the urgent need for stability and supportive policies to restore business confidence and stimulate economic growth.