Kenya’s Purchasing Managers’ Index (PMI) stood at 50.6 in December, indicating a slight improvement in the health of the private sector. Although the index dropped marginally from 50.9 in November, it remained above the neutral mark of 50.0 for the third consecutive month.
This positive reading was driven by growth in three key subcomponents: output, new orders, and employment, all of which expanded for the third straight month. Notably, this marked the first full quarter of private sector output growth since the final quarter of 2021.
Business output saw a general rise due to increased new order intakes, as reported by firms in the Stanbic Bank survey. New orders grew at a moderate pace, with the expansion easing slightly from November. Survey respondents noted improvements in customer purchasing power, alongside new bookings and successful advertising campaigns.
Rising demand also sustained a trend of increased input buying in December, marking the fifth consecutive month of growth in purchases. The increase was the sharpest recorded since September 2022. Stronger input demand led suppliers to raise their fees, with some firms citing currency weakness and higher tax burdens as contributing factors.
Despite a slightly lower average wage bill, the rate of overall input price inflation accelerated to its highest level in 11 months. As a result, selling prices at Kenyan firms rose at their fastest pace in 2024. Sector data indicated that agriculture and manufacturing firms faced the most significant input and output price inflation at the year’s close.
Kenyan firms reduced their backlogs of work for the second time in three months, suggesting some spare capacity in the private sector despite sales growth. However, optimism for higher activity in the coming year dropped to its second-lowest point in the history of the series, with only 5% of surveyed firms expecting an increase in output. These optimistic companies cited plans for business expansion and new product launches as the primary reasons for their positive outlook.
Employment growth remained weak overall, with only the agriculture sector registering an increase in staffing. Total employment growth was minimal. In response to demand fluctuations, businesses also reduced their inventories, marking the first decline in stocks in five months.
Christopher Legilisho, an economist at Standard Bank, commented on the data: “The Kenyan PMI expanded further in December, albeit at a slightly weaker pace than November, reflecting the continued resilience of the private sector after a challenging year. This marks the first quarter of output expansion since Q4:21, indicating that the private sector is showing signs of recovery, with new orders and employment also expanding. The growth is attributed to increased customer sales and improved purchasing power. December also saw healthy growth in purchasing plans, with businesses in construction and wholesale and retail sectors working to clear stocks.”
Legilisho continued, “Businesses reported higher pass-through of purchase prices, leading them to raise selling prices in December to protect profit margins. Rising input price pressures are mainly due to increased demand for commodities and higher taxes, particularly in agriculture and manufacturing.”
On the broader economic outlook, Legilisho noted: “We end the year with relative macroeconomic stability, including a stable exchange rate, inflation at levels not seen in 17 years, and declining interest rates for the government. However, private sector confidence in the business outlook for the next 12 months remains weak.”
