Kenya’s private sector firms posted fifth consecutive month of growth in January, although the pace of expansion slowed as demand softened at the start of the year, according to the latest Purchasing Managers’ Index (PMI) survey by Stanbic Bank.
The headline PMI eased to 51.9 in January from 53.7 in December, remaining above the 50-point threshold that separates growth from contraction but pointing to a moderation in business momentum.
The reading marked the joint-slowest pace of expansion in the current growth cycle, alongside September last year.
While overall conditions continued to improve, firms reported weaker gains in employment and purchasing activity, reflecting slower order inflows, a drawdown in backlogs and concerns about excess inputs.
Still, Stanbic Bank said the January outcome continued to “show a robust private sector,” underlining resilience despite emerging demand pressures.
Output growth holds up as demand momentum cools
Business activity continued to expand at a solid pace in January, even though output growth slowed to a four-month low. The expansion remained well above the survey’s long-term average, suggesting underlying strength in the private sector.
Firms attributed higher output largely to demand-side factors, citing increased customer referrals, new contracts and competitive pricing strategies. Marketing campaigns were widely credited with supporting sales, while improved access to credit also enabled companies to scale up activity.
New orders continued to rise across the economy, although the rate of growth weakened to its softest level in four months. “These improved demand conditions meant sustained increases in quantities purchased and inventories, while supplier delivery times shortened,” said Christopher Legilisho, economist at Standard Bank.
Performance varied sharply across sectors. Manufacturing firms most frequently reported rising sales, while construction and wholesale and retail businesses saw demand contract outright, highlighting uneven momentum across the economy.
Employment and purchasing growth lose steam
As output growth moderated, firms slowed the pace of hiring in January. Employment continued to rise, but at a weaker rate than in December, reflecting caution over future demand.
Purchasing activity also eased, although overall growth remained robust. The slowdown coincided with a sharp reduction in outstanding work, suggesting firms were able to process existing orders more efficiently. The rate at which backlogs declined was the fastest since April 2021.
Some companies reported taking steps to limit the accumulation of unused inputs. While inventories continued to rise, the increase was marginal and the weakest recorded in six months.
Cost pressures rise, confidence improves
Operating costs rose solidly in January, driven by higher prices for raw materials alongside increased tax charges, import fees and technology-related expenses. Output prices edged higher, although mark-ups remained modest as firms held back on price increases amid competitive pressures and concerns over slowing growth.
Legilisho noted that “increased competition made firms restrain price increases, as corroborated by headline inflation in January easing to 4.4% y/y.”
Despite softer demand, business optimism strengthened slightly. Output expectations rose to a five-month high, with firms citing expansion plans linked to marketing, diversification, new premises and contract bidding—signalling confidence that growth can be sustained in the months ahead.
