Kenya's private sector economy has shown signs of growth, with the Stanbic Bank Kenya Purchasing Managers' Index (PMI) rising to 51.3 in September from 49.7 in August. A PMI reading above 50 signals improving business conditions, while a reading below 50 indicates deterioration. This latest figure is the joint-highest since January and matches July's reading, indicating a positive trend in the country's economic performance.
The PMI is a monthly economic indicator that measures private-sector performance across manufacturing and services, providing valuable insights into the country's economic health. The index is based on a survey of purchasing managers across Kenya's private sector, covering areas including agriculture, manufacturing, construction, wholesale and retail, services, and mining. In September, the survey drew responses from around 400 private-sector companies, examining new orders, output, employment, purchasing, inventories, supplier deliveries, input costs, and selling prices.
The September PMI reading indicates that Kenya's private sector has returned to growth, driven by increased new orders, output, and employment. New orders increased for the fourth consecutive month, with companies reporting stronger demand, customer referrals, marketing campaigns, and improved cash flows. Employment also increased for a fourth consecutive month, while unfinished work rose as some companies struggled to keep pace with new orders.
Despite the positive trend, the biggest concern for businesses is the rising cost of inputs. About 30 per cent of surveyed firms reported higher input costs, while only 1 per cent recorded a decline. Businesses cited fuel, transport, and agricultural products among the main sources of pressure. This pressure is increasingly reaching consumers, with about one in five companies raising selling prices in September.
The rate of output-price inflation was the second fastest since November 2023, with official inflation data telling a similar story. Kenya's annual inflation reached 6.8 per cent in September, with food inflation at 9.5 per cent and transport inflation at 15.6 per cent. This indicates that while the private sector is growing, businesses and consumers are facing significant cost pressures.
It is essential to note that a PMI above 50 does not necessarily mean that every business is expanding or that the economy is booming. In fact, actual output remained in contraction for a seventh consecutive month, although the decline was the weakest during that period. The improvement in the headline PMI was driven more by demand and new orders than by a broad recovery in production.
The September PMI result shows that private-sector conditions improved, driven by demand and new orders. However, the economy still faces challenges, including high input costs and inflation. As the country moves forward, it is crucial to monitor the PMI and other economic indicators to understand the trajectory of Kenya's economy and identify areas for improvement.
Key points
- Kenya's private sector economy has returned to growth with a 51.3 PMI reading in September.
- Rising input costs, particularly fuel, transport, and agricultural products, are a significant concern for businesses.
- The country's annual inflation reached 6.8 per cent in September, with food inflation at 9.5 per cent and transport inflation at 15.6 per cent.
