The lingering struggle for cash has caused a sharp decline in business activities leading to steep reduction in output, with new orders and employment scaling down.
The February Purchasing Managers’ Index (PMI) data released by Stanbic IBTC Bank showed that cash shortages across the country in the month of February might have a severe impact on the private sector midway through the first quarter of the year.
This is just as companies were also impacted by shortage of fuel, which compounded price pressures, leading to supplier delivery delays. The PMI is a measure of the prevailing direction of economic trends in the manufacturing and service sectors.
“The headline PMI dropped below the 50.0 no-change mark in February, posting 44.7 from 53.5 in January. Business conditions deteriorated markedly, ending a 31-month sequence of expansion.
“The decline in operating conditions was the sharpest since the survey began in January 2014, excluding the opening wave of the COVID-19 pandemic in the second quarter of 2020.
“The most severe impacts of cash shortages were seen with regards to output and new orders, which both fell substantially as customers were often unable to secure the funds to commit to spending.
“The decline in new orders was the first since June 2020, while the fall in output ended a seven-month sequence of growth. In both cases, the reductions were the most pronounced in the survey’s history, apart from during the opening wave of the COVID-19 pandemic.
“With new orders and output falling, companies reduced their input buying and staffing levels accordingly. The declines were the first in 32 and 25 months respectively. The decrease in purchasing reflected not only a drop in customer demand, but also difficulties for companies to find the funds to pay for items,” it stated.
The report also noted that cash shortages led to a rise in fuel costs, which were widely mentioned as having been behind a further marked increase in purchase prices.
“Higher raw material costs and currency weakness were also factors pushing up purchase prices.
“The rate of inflation was the softest since June 2020, but marked nonetheless and stronger than the series average. Staff costs also rose again in February, but at a modest pace,” it stated.
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