Private sector activity in the country hit a nine-month low in January on lower client spending and slowed employment growth as Covid-19 continued to hamper recovery, a new survey shows.

The latest Stanbic Purchasing Managers Index (PMI) shows it fell to 47.6 in January from 53.7 in December.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

The index signaled a solid decline in operating conditions, albeit one that was slower than those seen in April 2021 and during the second quarter of 2020.

"Economic activity started 2022 on a subdued note as evidenced by the Stanbic PMI reading that fell to the lowest level in 9 months. While export demand grew marginally, domestic demand fell significantly as client spending was negatively affected by rising inflation and a resurgence in Covid-19 due to the Omicron variant," said Kuria Kamau, Fixed Income and Currency Strategist at Stanbic Bank.

According to Stanbic, lower client spending drove a marked decline in sales, in part related to strong price pressures and a recent surge in Covid-19 cases from the Omicron variant.

"Employment growth slowed and input purchasing fell as a result, while business confidence improved only slightly from December's record low," said Stanbic.

After registering the strongest upturn for 14 months in December, new business inflows declined sharply at the beginning of the year while export sales continued to rise, albeit at a far weaker pace.

Further, the index notes that output levels were scaled back at Kenyan firms, marking the first decline in private sector activity since last April.

Firms also indicated a renewed decrease in purchasing activity, which led to a reduction in inventory levels.

Employment numbers rose for the ninth consecutive month in January, helping firms to lower their backlogs of work again.

Even so, the drop in sales meant that the pace of job creation slowed to the weakest since last July.

Kenyan companies faced a faster rise in total input prices at the start of the year, driven by sustained increases in the price of raw materials and fuel.

The overall uptick in costs was the strongest seen in six months and above the series long-run trend.

In contrast, output charges rose at a slower and modest rate, as firms noted that pressure from higher cost burdens often competed with efforts to restore client sales while charge inflation softened to a five-month low.

Finally, Kenyan business confidence regarding future activity was again subdued in January, as pandemic-led uncertainty continued to weigh on expansion plans.

That said, sentiment picked up from December's series-record low to the highest since last September, amid optimism that the latest wave of Covid-19 cases has ended.

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