Kenya’s private sector activity edged up slightly in October on the uptick in demand for goods and services, prompting firms to grow their workforce for the first time in three months.
The growth in business operating conditions was, however, fractional with companies and households still battling cash flow challenges amid a tough economic setting riddled with political uncertainty, findings of Stanbic Kenya Purchasing Managers Index (PMI) suggested Tuesday.
The PMI, based on feedback from about 400 panellists, rose marginally to 50.4 from 49.7 in September.
That signals a recovery in key indicators such as output, new orders, and employment because PMI readings above 50 denote expansion, and those below point to a contraction compared with a month earlier.
“The latest Stanbic Bank Kenya PMI data reveals a cautiously optimistic outlook for the Kenyan private sector as business activity and employment levels returned to growth in October,” Mulalo Madula, senior analyst at Standard Bank, parent firm for Stanbic, wrote in the report.
“This improvement implies the challenges faced in previous months as now easing, albeit slowly, setting the stage for economic recovery.”
Businesses and households have been battling a biting lack of money in circulation for months, which was from June compounded by political instability that followed deadly youth-led protests against new taxes and bad governance.
That exacerbated economic uncertainty with consumers delaying spending decisions.
The PMI reports show about a third of the firms surveyed reported an increase in business deals in October, but this was offset by 29 percent of the panelists who reported a drop in activity.
The conditions for the remainder of the firms were neutral, explaining the marginal uptick in overall activity.
Firms in agriculture, construction, and wholesale and retail sectors posted an improvement in activities such as sales and output, while manufacturing and services firms suffered a month-on-month contraction, according to the PMI.
The slight growth in output prompted firms to recruit additional staff and stock up materials for future production buoyed by rising sales and greater client interest.
“Employment levels ticked up slightly, marking the first increase since July. Further, firms have been ramping up purchasing efforts, leading to the sharpest increase in inventories since August 2023, signalling that businesses are preparing for anticipated demand,” said Ms Madula.
This came in a month average prices of goods and services, technically called inflation, rose 2.7 percent compared with the year before—the softest growth since May 2007. This was largely on a modest 4.3 percent rise in average prices of food items compared with 7.9 percent a year earlier, while fuel prices fell 1.7 percent from a 13.1 percent jump.
Companies reported mild pressures on the cost of inputs, which resulted in slower rise in average prices they charged on goods and services in October.
“The interplay of higher material prices and tax payments, against the backdrop of reduced fuel costs, has led to only marginal increases in average selling prices,” Ms Madula added. “However, while the Future Output Index shows a rise in confidence among businesses regarding future activity, it remains at one of its lowest levels historically.”
The falling inflation will put pressure on the Central Bank of Kenya’s Monetary Policy Committee to further cut base interest rates in its next meeting in December, helping raise private sector credit and improve the circulation of money in the economy.
