Kenya’s private sector activity expanded for a fourth running month in January, the first time in two years, on improving circulation of money and mild inflationary pressures which helped sustain output and demand for goods and services.
The pace of expansion in activities such as output, new orders, and employment was, however, slower than the previous two months, according to a monthly survey based on feedback from about 400 companies.
The Stanbic Kenya Purchasing Managers Index (PMI) — which monitors performance in key sectors of agriculture, manufacturing, construction, wholesale & retail, and services — slipped slightly to 50.5 from 50.6 in December. PMI reading above 50 signals expansion in business activity, while that below denotes a contraction.
The expansion for the fourth successive month from last October was the first since January 2023 when business conditions witnessed a five-month expansionary sequence from September 2022.
“Kenyan companies saw sustained upturns in their activity levels and new work intakes during January. Survey panelists commented that new client referrals, increased marketing, improved cash flow, and an easing of inflationary pressures underscored the rise in sales,” Stanbic Bank wrote in the PMI report which is compiled by US analytics firm, S&P Global.
Kenyan firms have in recent months been reporting gradual improvement in consumer purchasing power after sales were hit by depressed circulation of money in a softening economy due to the prohibitive cost of borrowing and piling pending bills for government contractors and suppliers.
Households and businesses had also delayed spending decisions for non-essential goods and services due to economic uncertainty that followed the deadly anti-government protests between June and July last year.
Firms in January raised output levels at the weakest pace since the growth momentum started last October, while growth in new orders was the weakest in three months, according to the PMI.
Weaker demand prompted companies to freeze hiring of new employees for the first time in four months while keeping a lid on payroll expenses.
“Firms were able to increase stocks purchased and inventories held to cover higher sales as well as the future likelihood of difficulty in finding materials. Some firms nevertheless reported harsh economic conditions. Still, employment conditions were relatively stable,” Stanbic economist Christopher Legilisho wrote in the report.
He added: “Kenyan businesses reported an increase in purchase prices for imported commodities, albeit a slower one than the preceding month, still attributed to higher taxes. Output prices increased but less briskly so as firms passed on higher input and purchase prices to customers.”
Overall inflation, a measure of average prices of goods and services over the prior year, rose to 3.3 percent in January from 3.0 percent a month earlier, according to Kenya National Bureau of Statistics.
Despite commercial banks starting to cut the cost of borrowing in line with falling benchmark interest rates and the Treasury signaling plans to start paying pending bills up to Sh10 million, the business outlook remained depressed.
“Optimism levels across the private sector economy remained weak in January. The Future Output Index posted one of its lowest readings since the survey began 11 years ago, although it was up slightly since December,” the PMI report states.
