High interest rates have slowed down private sector activities with costly goods and services seeing companies record low customer turnout even as new orders rise sharply by end of October, a new survey by CFC Stanbic reveals.
The sector was undermined by slower expansion in output owing to a spike in commercial bank charges that has seen an increase in interests on mortgage, car and personal loans by as much as 7 percent.
Intense marketing by some companies in efforts to raise output from their extended product range and new contracts signed over the month were not sufficient to uplift the sectors performance which recorded a flat growth.
The headline Purchasing Manager’s Index (PMI) fell slightly to 51.7 in October from 51.9 in September on drop in output despite new orders rising.
“It is probably a reflection of firms remaining cautious in their purchasing activities due to higher interest rates. Price pressures eased, while job creation remained sluggish,” said CFC stanbic bank Economist, Jibran Qureishi.
Currency weakness remained a key source of inflationary pressure, as both input costs and output charges increased.
Marginal rates of expansion in output and employment have been attributed to the weakest overall improvement in operating conditions in the survey’s 22-month history.
Qureishi has pointed out headline inflation will continue rising towards the end of the year mostly due to base effects as he asserts a trend of poor performance could negatively impact economic growth for the last half of the year.
Input price inflation remained sharp, despite easing to a four-month low that saw charges picking up for the seventh consecutive month, pushing firms to pass the high costs to consumers.
High public sector spending over the period saw a rise in interest rates to drive down private sector spending in a crowding out effect to dampen private sector investments.
“Sure, public investment in infrastructure will continue to underpin GDP expansion mostly via higher construction output; however it’s imperative to ensure that this doesn’t come at the expense of a stable macroeconomic environment,” said Qureishi.