Kenya’s private sector activity expanded for the fourth consecutive month in January, but at a slightly slower pace than in December, according to the latest Stanbic Bank Kenya Purchasing Managers’ Index (PMI).
PMI, which tracks private sector activity, edged down to 50.5 in January from 50.6 in December, remaining above the 50-point mark that separates growth from contraction.
“The Kenyan Purchasing Managers’ Index (PMI) expanded for a fourth month running in January but at a slightly weaker pace…,” said Christopher Legilisho, economist at Standard Bank.
Key Findings
Despite overall growth, the survey revealed a slight slowdown in new orders and a decline in job creation compared to the previous month.
“While the PMI remained above the 50-point mark, indicating continued growth, the pace of expansion softened slightly,” said Christopher. “This reflects a challenging economic environment and subdued demand.”
During the month, input costs continued to rise, driven by higher taxes on imported commodities. However, the pace of price increases moderated compared to the previous month.
As a result, business expectations for the next 12 months remained subdued, with concerns about subdued consumer demand and the high cost of doing business.
Challenges
High credit risk and reluctance among banks to lower lending rates are expected to keep credit growth below 5% in the first quarter of 2025.
“Commercial bank lending to the private sector contracted by 1.4 per cent in December 2024 compared to the previous year, mainly reflecting exchange rate valuation effects on foreign currency denominated loans following the appreciation of the Shilling and reduced demand attributed to high lending interest rates,” said the Monetary Policy Committee.
The macroeconomic environment remains challenging, with concerns about subdued consumer demand and the impact of pending government bills.
Positive Outlook
The recent decline in interest rates and stable macroeconomic conditions are expected to support economic growth.
In addition, the CEOs Survey and Market Perceptions Survey indicate improved business optimism for the next 12 months.
“The optimism was attributed to the stable macroeconomic environment reflected in low inflation and stability in the exchange rate, expected decline in interest rates which is expected to ease access to credit, favourable weather conditions which will continue to support agriculture, and lower global oil prices,” said the Monetary Policy Committee (MPC) after lowering the policy rate by 50 basis points to 10.75%, and further lowered the Cash Reserve Requirement (CRR) by 100 basis points to 3.25%.
