The Stanbic Bank Kenya PMI® signalled an improvement in private sector business conditions during May, as falling cost burdens and rising new business contributed to a solid expansion in activity.
The upturn in activity was the sharpest recorded in 20 months, as was input buying growth. Job creation continued at a mild pace.
Reductions in fuel prices and import costs led to a further drop in overall input prices in May, after the first decrease in nearly four years during April. Selling prices started to rise again, albeit slowly.
The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI). Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration.
The latest headline PMI reading of 51.8 marked the index’s best performance since January 2023. Rising from 50.1 in April, the index signalled a moderate improvement in the health of the private sector economy.
The strengthening of private sector conditions was largely due to a turnaround in inflationary pressures at Kenyan companies.
Why there was a fall in overall input prices
After pointing to record-high rises in costs in late 2023, May survey data signalled a fall in overall input prices for the second month running, and the fastest ever outside of the 2020 COVID-19 lockdown.
The drop was mostly linked by panellists to lower fuel prices, plus decreases in import costs as shilling-dollar exchange rates remained strong.
With costs falling, Kenyan firms increased their output for the first time since February, and at a solid pace that was the
quickest for 20 months. Firms also saw a renewed uplift in new order inflows as falling inflationary pressures led to stronger customer spending. The rate of sales growth was the fastest recorded since January 2023.
Notably, though, output expansions were only registered in the services, manufacturing and wholesale & retail sectors. By contrast, agriculture and construction saw output decrease, as firms highlighted the impact of heavy rainfall and floods.
Kenyan firms increased their purchasing activity at a quicker rate in May amid rising sales and output requirements. The rate of purchasing growth was the fastest for 20 months and contributed to a stronger uplift in inventories. Additionally, firms hired more workers for the fifth month running.
After falling for the first time in over three years in April, average prices charged by private sector firms rose slightly in May. The increase in prices was broadly related to efforts to improve margins, though there were many reports of firms passing on cost reductions to clients.
activity than at the start of the year, despite the degree of confidence slipping from April’s 13-month high. Growth projections partly reflected plans to open branches, purchase new vehicles and boost marketing spending.
