An increase in sales has been credited with expanding the Kenyan Purchasing Managers Index (PMI) in December, although the growth pace was slightly weaker compared to November.
The trend reflected continued resilience of the private sector despite a challenging year.
Mr Christopher Legilisho, an economist at Standard Chartered Bank, said that the end of 2024 was the first quarter of expansion in output since the fourth quarter of 2021. This, according to him, suggested that the private sector was showing signs of turning around with new orders. It was also an indication that employment was expanding and consumer purchasing power has been on the upswing.
The PMI data also signaled healthy growth in purchasing plans in December with a drop in inventories as firms pushed to clear stocks in the construction, wholesale and retail sectors.
“Kenyan businesses reported increased pass-through of purchase prices, and therefore, raised their selling prices in December to protect their profit margins. Rising input and purchase price pressures are attributed to a further increase in demand for commodities and higher taxes, mainly in the agriculture and manufacturing sectors,” said Mr Legilisho.
“On the macroeconomic front, we ended the year with relative stability, a stable exchange rate, inflation at levels last seen 17 years ago, and interest rates declining for government. On the downside, private sector confidence in the business outlook for the next 12 months is still quite weak.”
The PMI indicated that in 2024, a sharp increase in input costs led private sector firms to increase their selling prices at the quickest rate since December 2023. The pick-up in cost burdens came as sustained growth in new orders and business activity prompted the fastest expansion in input buying for over two years.
The headline PMI stood at 50.6 in December, indicating another marginal improvement in the health of the private sector. The index dropped slightly from 50.9 in November, but was above the 50.0 neutral mark for the third month running.
New orders and employment all expanded for the third straight month. Notably, this marked the first full quarter of private sector output growth since the fourth quarter of 2021.
Business output generally rose due to an increase in new order intakes, according to firms monitored by the survey. New orders grew moderately, with the upturn easing from November.
Meanwhile, rising demand helped to sustain the current trend of input buying growth in December, with a rise in purchases registered for the fifth month in a row. Furthermore, the increase was the sharpest recorded since September 2022.
Sector data revealed that agriculture and manufacturing firms faced the strongest rates of both input and output price inflation at the end of the year.
On the positive side, firms reduced their backlogs of work for the second time in three months, indicating spare capacity in the private sector despite sales growth.
On the downside, optimism for higher activity in the next 12 months dropped to its second-lowest in the series’ history. Only five per cent of surveyed firms expect output to rise, with these companies basing optimism on planned business expansion and new products and services.
With the outlook relatively weak, just the agriculture sector registered a rise in staffing in December. Total employment growth was only fractional. At the same time, businesses offloaded stocks to avoid wastage, leading to the first decline in inventories for five months.
– Joseph Ng’ang’a
