In recent months, Kenya’s private sector has demonstrated a gradual yet encouraging recovery as a result of increased sales. However, in December 2024 private sector activity declined as compared to November 2024.
According to the Stanbic Bank Purchasing Managers’ Index (PMI), which measures the performance of agriculture, mining, manufacturing, services, construction and retail sectors from a survey of 400 companies, the index decreased from 50.9 in November to 50.6 in December 2024.
Despite the dip, with the index still above 50.0, it was an indication of sustained private sector expansion. Since September 2024, when the index fell to 49.7, it has remained above the 50.0 no change mark, rising to 50.4 in October 2024.
This marked the first quarter of output expansion since the fourth quarter of 2021, suggesting a positive change in the private sector. Increased customer sales, new orders, and marginal employment growth contributed to this positive trend.
According to Christopher Legilisho, Economist at Standard Bank, the rise in business output was largely attributed to improved purchasing power among customers, successful advertising campaigns, and a notable increase in new bookings.
However, the landscape was not without its challenges. For instance, despite recording a growth in employment in the month it was only minimal. In fact, only the agriculture sector saw an increase in staffing levels in December.
Input costs also surged at their fastest rate in eleven months, primarily due to stronger demand, currency weakness, and heightened tax burdens. Agriculture and manufacturing sectors experienced the most significant rates of both input and output price inflation, reflecting the broader economic pressures at play.
Additionally, businesses chose to reduce their inventories to prevent wastage, resulting in the first decline in stock levels in five months.
Only 5% of the businesses surveyed anticipated a rise in output, with their optimism stemming from plans for business expansion and the introduction of new products and services.
As a result, business sentiment remained subdued, with optimism for higher activity in the coming year dropping to its second-lowest level in the series.
“On the macroeconomic front, we end 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,” said Christopher Legilisho.
