Kenyan Businesses Had A Slight Breathing Space In December

by Business Watch Team

The latest Kenya PMI® findings signaled a strong move towards stability in private sector business conditions in December, helped by a considerable cooling of inflationary pressures.

Rises in input costs and output prices were the softest since April, having slowed markedly from record highs in October.

Subsequently, many companies saw a recovery in new work amid improved client spending, offsetting the impact of cost-of-living pressures. As such, new orders, output, and employment all declined to lesser degrees.

The headline figure derived from the survey is the Purchasing Managers’ IndexTM (PMI®). Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration.

The headline PMI moved three points higher in December, up to 48.8 from 45.8 in November, to signal a modest and softer decline in operating conditions across Kenya.

Private sector conditions have now deteriorated for four months running, although the latest decline was the weakest in this sequence.

Output levels at Kenyan companies fell to a lesser extent at the end of the year, as firms highlighted a partial rebound in demand conditions. Similarly, new order inflows dropped at the softest pace in four months and only slightly.

According to anecdotal evidence, customer turnout and purchasing power improved amid a softening in inflationary pressures, especially across the services sector. Firms were also supported by the sharpest increase in new export business in exactly two years.

On the flip side, contractions in output and new orders remained sharp in the manufacturing and construction sectors, as firms continued to signal cost-of-living pressures and weak demand conditions. December survey data also highlighted a marked slowdown in input cost inflation across the private sector.

After reaching a survey-record peak in October, the rate of inflation slowed for the second month running and by the greatest degree ever noted. While firms indicated that currency weakness and tax burdens continued to lift overall input costs, the settling of fuel prices somewhat alleviated the rise.

Similarly, average output charges rose to a much softer degree in December, albeit remaining sharp and faster than the long-run average. Sector data showed a cooling of inflationary pressures in all segments except agriculture, with manufacturers even reducing factory gate prices. With cost pressures easing and the downturn in sales softening, purchasing activity at Kenyan firms was broadly stable in December, helping businesses to raise their inventories and deplete backlogs of work.

Lead times on purchased items were shortened for the third month running. The drop in employment levels was also tempered at the end of the year, with the latest data indicating the softest fall since September. Agriculture was the only sector to see a rise in staffing.

Nonetheless, Kenyan businesses were less optimistic about future activity in December, with the degree of confidence slipping to a seven-month low. Expectations were also among the lowest seen on record, with just 11% of panelists predicting growth over 2024.

Related Content: Stanbic PMI Spells Doom For The Kenyan Economy: No New Orders, No Employment

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