The private sector extended its growth streak in February, albeit at a marginal pace, with the Stanbic Purchasing Managers’ Index (PMI) inching up to 50.6 from 50.5 in January.
The latest reading, though signaling expansion for the fifth consecutive month, remained below its long-term average of 51.2, underscoring the fragile nature of the recovery. A reading above 50 indicates an improvement in business conditions compared to the previous month, while a reading below 50 signifies a decline.
“The February PMI for Kenya shows a private sector still growing, though only slightly faster, amid still weak demand,” said Christopher Legilisho, an economist at Standard Bank. “The positive expansions in output, new orders, and employment suggest a steady private sector over the last five months. However, demand improvements were not widespread across all sectors,” Legilisho added.
Uneven Sectoral Performance
The survey indicates that while agriculture, manufacturing, and construction drove overall growth, the services sector lagged, weighed down by weaker demand and intensified competition. Wholesale and retail businesses also saw a pullback in input purchases, reflecting cautious spending by firms facing uncertain economic conditions.
The study notes that despite the output growth, businesses remained wary of the future, with sentiment about year-ahead activity slipping to one of its lowest points on record. Only 5% of surveyed firms expressed optimism about future expansion, citing concerns over economic uncertainty and stiff competition.
“The economic environment has improved slightly, but businesses remain doubtful about future output expectations,” Legilisho said. “Still, lower interest rates may well resuscitate lending among firms and thereby drive economic activity,” he noted.
Inflationary Pressures Ease
A key factor supporting business conditions in February was a slowdown in inflationary pressures. Input costs rose at the slowest pace in four months, driven by muted increases in purchase prices. In response, firms adopted a cautious approach to pricing, with only a slight uptick in output prices.
The moderation in inflation reflects broader trends in Kenya’s economy, with consumer price growth easing from the 2023 peak of 9.6 per cent in October, driven by soaring costs in key sectors such as food, housing, and transport, which strained household budgets and business operations. While these pressures have lessened, persistent high import costs continue to hinder aggressive business expansion.
Modest Gains in Employment and Inventories
The PMI report indicates that employment levels saw a mild recovery, reaching a four-month high, yet remaining below the long-term trend. Firms also showed limited enthusiasm for inventory buildup, with stock levels rising at a below-average pace as purchasing activity contracted for the first time since July 2024.
“The focus for many businesses has been on improving efficiencies among vendors and managing inventories carefully,” Legilisho noted. “There’s still strong demand in key sectors, but firms are not yet confident enough to scale up operations significantly,” he added.
Cautious Optimism Amid Lingering Challenges
Despite the steady recovery, Kenya’s private sector is faced with structural challenges, including constrained consumer spending, currency volatility, and external economic pressures. While lower interest rates offer some relief, businesses remain cautious about the pace of demand recovery.
Analysts say the government’s fiscal policies and the trajectory of inflation will be critical in determining whether the private sector can sustain its growth momentum. With firms hesitant to ramp up hiring and investment, a stronger pickup in demand will be necessary to drive more robust expansion in the months ahead.
ALSO READ: Over 30 Private Sector And Government Institutions To Showcase Innovations
