New Orders Nearly Stabilize In January As inflationary Pressures Continue To Fade

Kenya’s private sector economy moved closer to growth territory in January, according to the latest PMI® survey data. Business activity and new order volumes dropped only fractionally, while firms expanded their workforce numbers for the first time in five months.

The near stabilization followed a continued slowdown in inflationary pressures, with both input cost and output price inflation at or near their long-term averages – a notable turnaround from record highs last October.

Nevertheless, sentiment regarding future output ticked down to an eight-month low, with just a tenth of businesses showing optimism for the year ahead. 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 rose to a five-month high of 49.8 in January, up from 48.8 in December, and was almost level with the 50.0 mark which signals a stabilization.

This was mainly due to slower contractions in activity and new orders, as well as a renewed uplift in staffing. Business activity at Kenyan firms fell for the fifth month running in January, albeit at the slowest pace in this sequence and only slightly.

The almost stable trend was linked to a similar picture for new order volumes, which decreased at only a fractional pace. Weak client demand and cash flow problems continued to hit sales at many companies, whereas others noted improvements in order books and foreign sales.

The softer fall in new orders was closely linked to a softening of inflation at the start of the year. The latest survey data signaled that input prices rose at the slowest pace since December 2022, with inflation having cooled markedly from a record high last October and posting in line with the series average.

Anecdotal evidence showed that a waning of fuel price pressures was a key factor, although firms continued to widely cite increases in import prices and tax burdens. Subsequently, average prices charged by Kenyan companies rose to the softest degree in nearly a year and a half.

Where prices increased, firms noted a combination of higher costs and a stabilizing demand environment. Elsewhere, the latest survey data signaled a rise in employment numbers in January, the first monthly upturn since last August. The rate of job creation was only marginal, however, with comments mainly linking the rise to the addition of temporary employees.

Backlogs of work also increased, but only fractionally. Purchasing activity dropped for the fifth month in a row and at a faster pace than in December. Subsequently, inventories of inputs were largely unchanged after three successive months of growth. Lower buying meant that suppliers were able to deliver items more quickly, although the rate of improvement was only modest.

Future output expectations were subdued in January, ticking down to their lowest since May 2023. Notably, just 10% of businesses predicted a rise in output over the next year, citing efforts to increase projects, add services, boost marketing, and open branches.

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