Kenya’s private sector economy is signaling a return to growth territory in what Stanbic Bank says is as a result of easing inflationary pressures.
Stanbic Bank Purchasing Managers’ Index (PMI) rose to a five-month high of 49.8 in January, up from 48.8 in December boosted by to slower contractions in activity and new jobs created.
Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
“Business activity at Kenyan firms fell for the fifth month running in January, albeit at the slowest pace in this sequence and only slightly. The almost-stable trend was linked to a similar picture for new order volumes, which decreased at only a fractional pace. Weak client demand and cash flow problems continued to hit sales at many companies, whereas others noted improvements in order books and foreign sales,” said Christopher Legilisho, Economist at Standard Bank.
The slight reduction in orders by Kenyan firms is attributed to softening of inflation at the start of the year.
On the other hand, input prices rose at the slowest pace since December 2022, with inflation having cooled markedly from a record high last October and posting in line with the series average. This was mainly supported by the reduced fuel prices.
“Subsequently, average prices charged by Kenyan companies rose to the softest degree in nearly a year-and-a-half. Where prices increased, firms noted a combination of higher costs and a stabilising demand environment,” added Legilisho.
The slight decline in new orders which resulted to reduced sales was on the backdrop of reduced client spending and cash flow problems faced by companies.
Nonetheless, Kenyan firms registered growth in exports for the fourth consecutive months with roughly a quarter of respondents seeing a rise in new orders from abroad with pick-up in demand from the UK and Germany.
Stanbic Bank says businesses also reported a rise in employment numbers at the start of the year, thereby ending a four-month run of decline.
However, the rate of job creation was only slight overall with firms noting an increase in staffing on short-term contracts as demand conditions stabilised and outstanding workloads rose.