Fears over the strength of the economy in the coming months due to low demand have knocked Kenya's business sentiment.
The Business Sentiment Indicator, a measure of the level of confidence businesses have in the economy, prepared by Standard Chartered Bank fell to 57 in February, the lowest since August 2015. It was 63.9 in January.
Demand for local goods was at a year low during the period covered by the survey, reflecting a slowdown in demand following the festive season.
Export orders fell 14.4 per cent in February to 51, the lowest since November last year. While future expectations also fell, majority of those polled indicated that firms expect future export orders to improve from the current levels.
During the month, firms reported lower intentions to hire compared to January. This is expected to be sustained in future, especially in the absence of improvement in demand.
“The fall was driven by sharp drops in a number of the indicators. The more negative view of the Kenyan economy revealed by our February BSI does not correlate with our view that the economy continues to grow strongly and is likely to see stronger economic momentum in the second half,” said Razia Khan, Standard Chartered’s chief economist for Africa.
The February BSI report negates the expectation that the economy will grow this year supported by completion of ongoing infrastructure projects and easing on the interest rates to allow access to cheap credit.
According to the survey, while firms saw their financial positions somewhat eroded in February due to low demand and weaker productivity that impacted on their profitability, future expectations improved suggesting that they expect their profitability to improve in the coming months.
The survey is carried out every month where up to 200 formal-sector businesses in different sectors of the economy are asked to respond to questions on the country’s current and future economic conditions.
Respondents are asked whether business activity has improved, deteriorated or remained the same, compared with a previous month. They are also asked about their expectations over the next month. An indicator above 50 shows a positive movement.