Expectation of Higher Inflation Tempers growth Optimism in Kenya
An expectation of a higher inflation rate tempers growth optimism in Kenya in the third quarter of the fiscal year 2021. According to the survey conducted by the Central Bank of Kenya, firms reported that activity in the third quarter would likely be impacted by higher inflation.
The Central Bank of Kenya Chief Executive Officers’ (CEOs) Survey complements the Private Sector Market Perceptions Survey and Survey of Hotels conducted by the Monetary Policy Committee (MPC).
The document released by the apex bank, the July 2021 Survey revealed increased optimism compared to the May 2021 level.
Most businesses remained optimistic about growth prospects for the global economy, own companies, own sector and for the Kenyan economy.
Also, the shows that optimism was generally higher in the services and manufacturing sectors with respondents reporting a resurgence in business activity.
With regard to economic activity, business activity indicators for the third quarter of 2021 compared to the second quarter were mixed with respondents reporting mixed performance of demand/orders and growth in sales.
Kenyan firms continue to be optimistic about business activity indicators for the fourth quarter, with expectations of an increase in demand/ orders, production volumes, sales growth, and prices of goods/services purchased.
Nevertheless, firms reported that activity in the third quarter was likely to be impacted by higher inflation. Prices of goods and services sold remained the same for a majority of respondents.
But firms also reported scaling down operations and closing a number of units, resulting in the number of employees remaining the same for a majority of them.
Among others, reduced consumer demand and increased taxation were identified as significant factors that could constrain the expansion/growth of private sector firms across all sectors over the next 12 months.
In response to these constraints, firms in the agricultural sector intend to leverage on increased sales/marketing and management of costs and risks while those in servers and manufacturing sectors intend to manage costs and risks.
The business leaders indicated that they would leverage their firms’ top strengths, identified as trusted brands/product quality, customer-centricity and company values to address their most urgent concerns.
Nonetheless, they would like to see more government support towards improving the business environment.
The CBN survey shows there were no significant deviations in strategic direction for CEOs over the next three years, compared to the May 2021 Survey. In particular, business leaders plan to diversify more, invest in skills/talent development, and grow their businesses sustainably.
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Expectation of Higher Inflation Tempers Growth Optimism in Kenya
