Business activity and new order volumes in Kenya’s private sector rose at the strongest rates in 20 months in May, driven by falling inflationary pressures and a rebound in customer spending, according to a key survey released on Wednesday.
The Stanbic Bank Kenya Purchasing Managers’ Index (PMI), compiled by S&P Global from responses to questionnaires sent to around 400 private sector companies, jumped to 51.8 in May from 50.1 in April. A reading above 50 signals an improvement in business conditions.
The acceleration in activity and sales was fueled by a turnaround in cost pressures, the survey showed. After soaring to record highs in late 2023, overall input prices fell in May for the second straight month, recording the sharpest decline outside of the Covid-19 lockdown period. Companies attributed the decline largely to lower fuel prices and reduced import costs due to a favorable Kenya shilling-dollar exchange rate.
“Output and new orders recorded strong gains in May as firms reported increased consumer demand,” said Christopher Legilisho, Economist at Standard Bank, in the release. “There were expansions in the services, manufacturing, and wholesale and retail sectors.”
The surge in new work led Kenyan firms to ramp up purchasing activity and hiring. The rate of increase in input buying was the fastest in 20 months, while employment rose modestly for the fifth month running.
However, the impact of heavy rainfall and floods weighed on output in the agriculture and construction sectors, the survey noted.
While companies grew more optimistic about the year-ahead outlook amid the receding cost pressures, confidence levels remained below the long-term average. “Though firms are positive about expectations over the next 12 months, this optimism is still well below the long-run average,” Legilisho said.
The PMI data suggests the worst may be over for Kenyan businesses that have battled a toxic mix of surging inflation, higher interest rates, and sluggish demand over the past year. A continued cooling in price pressures could help reinforce the recovery in coming months.
“Encouragingly, input prices fell in May for a second month, with respondents noting a decline in fuel prices and lower import costs,” Legilisho said. “Meanwhile, output prices increased only slightly. This aligns with our view that inflationary pressures have eased.”
