Kenya’s private sector demonstrated remarkable resilience against a backdrop of increasing inflationary pressures, according to the Stanbic Bank Kenya PMI® report. Despite challenges, businesses showed a measured improvement in activity for the third consecutive month, signaling cautious optimism and adaptability.
The Purchasing Managers’ Index™ (PMI), a key indicator of private sector health, stood at 50.6 in December 2024. This reading, while slightly lower than November’s 50.9, remained above the neutral 50.0 threshold, signifying marginal growth. For the first time since late 2021, the private sector sustained output growth over a full quarter, driven by increased orders and employment.
Rising Demand Fuels Business Activity
The modest increase in business activity was underpinned by a surge in new orders. Companies attributed the growth to improved purchasing power among customers and successful marketing initiatives. While the rate of new order growth eased compared to November, it nonetheless maintained a positive trajectory.
In response to rising demand, businesses accelerated their input purchases, marking the sharpest expansion in input buying since September 2022. The agriculture and manufacturing sectors played a pivotal role in this growth, reflecting strong demand for commodities.
Inflationary Pressures Intensify
However, the sustained growth came at a cost. The report highlighted a notable acceleration in input price inflation, the fastest in 11 months. Currency fluctuations, higher taxes, and increased supplier fees contributed to the rising costs. Firms, in turn, passed these costs onto consumers, resulting in the sharpest rise in output prices since December 2023.
Agriculture and manufacturing bore the brunt of these price pressures, experiencing the highest rates of input and output price inflation. Despite these challenges, businesses remained focused on maintaining profit margins through strategic pricing adjustments.
Labour Market and Operational Dynamics
Employment levels in December saw minimal change, with growth largely limited to the agriculture sector. Other industries experienced stagnation or slight declines in workforce numbers. While the employment index remained above the neutral threshold, the gains were fractional, reflecting cautious hiring practices amidst economic uncertainty.
On the operational front, businesses managed to reduce backlogs of work for the second time in three months. This decline, the fastest in two years, signaled improved efficiency and available capacity despite growing sales.
Mixed Sentiments on the Future
Looking ahead, private sector confidence appeared muted. Business sentiment regarding output over the next 12 months dropped to its second-lowest level in the survey’s history. Only 5% of firms expressed optimism about expansion in 2025, citing plans for new branches, additional services, and enhanced marketing strategies.
The subdued outlook reflects broader macroeconomic concerns, including heightened tax burdens, currency instability, and inflationary pressures. Nonetheless, businesses are taking proactive measures to adapt, as seen in their efforts to clear inventories and optimize supply chains.
Sectoral Highlights
Sectoral data revealed notable trends. The construction and wholesale and retail sectors led the reduction in inventories as firms sought to minimize waste. Meanwhile, agriculture and manufacturing showed the strongest growth in purchasing activity, underscoring their role as key drivers of the economy.
Despite the challenges, the private sector’s ability to sustain growth amidst mounting pressures highlights its resilience. The combination of strategic cost management, targeted marketing, and adaptive operational practices has enabled businesses to navigate a complex economic landscape.
