Kenya’s private sector activity witnessed a modest improvement according to Stanbic Bank’s latest Purchasing Managers’ Index (PMI) for May 2024.
The index rose to 51.8, up from 50.1 in April 2024, exceeding the neutral mark of 50.0. This signifies a strengthening of operating conditions compared to the previous month.
A PMI reading above 50.0 indicates improvement, while below 50.0 indicates deterioration in business conditions.
The May 2024 PMI (51.8) represents a 4.9% increase compared to May 2023 (49.4).
During the period, inflation remained relatively unchanged at 5.1%, slightly above the Central Bank of Kenya’s (CBK) target of 5.0%. However, it remains within the target range of 2.5% to 7.5% for the eleventh consecutive month. Notably, inflation decreased from 5.7% in March 2024.
Subsequently, output increased for the first time since February 2024, with growth observed in services, manufacturing, and wholesale and retail sectors. However, agriculture and construction experienced declines due to heavy rains and floods.
“Inflationary pressures meant weak demand; new orders declined, as did output in the manufacturing and wholesale and retail sectors,” Mulalo Madula, an Economist at Stanbic Bank, said.
The survey noted that easing cost pressures and slowing sales decline led to increased purchasing activity, reflecting stronger consumer spending. This allowed businesses to raise inventories and improve buffers for the fourth consecutive month.
Employment Growth
Employment levels improved for the fifth consecutive month in May, with a rise in staff costs, increased inventories, and prospects of new business driven by higher customer demand.
Despite a slight decrease from the 13-month high in April 2024, overall sentiment towards future business activity remained positive. This optimism reflects anticipated investments in marketing, capacity enhancements, and new branches.
The short- to medium-term business climate might face constraints due to a challenging economic environment with high interest rates from tighter monetary policy, rising taxes, and an overall increase in the cost of living.
However, businesses are expected to benefit from reduced inflationary pressures and a stronger Shilling, leading to lower input costs.
“Though firms are positive about expectations over the next 12 months, this optimism is still well below the long-term average,” Madula said.
