Kenya’s private sector bounced back to growth after four months of stagnation. This is attributed to a strong increase in new orders since the year begun. This is despite supply disruptions caused by effects of the Middle East crisis.
Also, employment expanded at the fastest pace this year with business optimism also up to the highest levels since February 2023.
According to the Purchasing Manager Index(PMI) for July, Kenya’s businesses successfully attracted customers through referrals and marketing. Positive momentum was nonetheless tempered by persistent operational challenges, including a contraction in output, supply chain disruptions, and elevated cost pressures.
Kenya’s employment numbers are at a peak since 2023
Despite this, Kenya’s firms demonstrated greater confidence in their prospects, with employment expanding at the fastest pace so far this year, while overall business optimism surged to its highest since February 2023.
The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI®). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.
For the first time since February, Kenya’s PMI registered in expansion territory, increasing from 50.0 in June to 51.3 in July.
The reading signalled a moderate improvement in the private sector’s performance after several months of challenging conditions.
The survey revealed a notable divergence between demand and output.
New work inflows expanded solidly and for the second consecutive month following a three-month decline, with growth accelerating to its quickest pace since January.
Firms have recorded a surge in demand although output is still curbed
Greater customer receipts were often attributed to client referrals, marketing efforts and new products and services.
However, output contracted for the fifth straight month, albeit at the slowest rate in this sequence.
This mismatch partly reflected ongoing challenges with elevated inflationary pressures and their knock-on effects on liquidity, which prevented firms from fully capitalizing on stronger demand conditions.
The labour market showed encouraging signs in July, with private sector employment rising solidly.
This was done predominantly through short-term hiring to address mounting workloads.
Backlogs of work accumulated for the second successive month, albeit at a softer pace than June. The build-up of unfulfilled orders was attributed both to the output-demand.
Christopher Legilisho, Economist at Stanbic Bank said, “Kenya’s PMI increased in July as conditions in the private sector improved. The headline gain was mainly driven by stronger new orders and modest short-term hiring, implying that firms are responding to pockets of demand and near-term workload pressures.
However, output stayed subdued. This is as elevated inflation, higher input costs and tight cash flows hit production.
He added that at the same time, rising backlogs point to supply-side frictions, with delayed import deliveries limiting firms’ ability to convert new orders into actual output.
Stocks purchased and inventories were broadly stable. This implies that firms took divergent approaches to increasing orders. Some drew down existing stocks. Other rebuilt inventories in anticipation of firmer demand.
Kenya’s private sector has faced logistical challenges especially firms that rely on imported inputs
“The July PMI suggests that demand is beginning to recover but cost pressures and logistics bottlenecks are still constraining activity,” said Legilisho.
Stanbic Bank Kenya PMI provides essential intelligence. We enable governments, businesses and individuals with the right data, expertise and connected technology.
The Stanbic Bank Kenya PMI® is compiled by S&P Global. It analyses responses to questionnaires sent to purchasing managers in close to 400 private firms.
The panel is stratified by detailed sector and company workforce size. This is based on contributions to GDP. The sectors covered by the survey include agriculture, mining, manufacturing, construction, wholesale, retail and services.
Data collection began in January 2014. Survey responses are collected in the second half of each month. The PMI indicates the direction of change compared to the previous month.
