Kenya's growth rate dropped for the first time in nine months, and this has been the main reason businesses are struggling, according to a new report.
The new Stanbic Purchasing Managers' Index (PMI) report shows the country's growth dropped to 49.6 in May from 52.0 the previous month.
The drop was attributed to rising prices of goods and services, which affected customer spending and led to weaker business activity.
The downturn ended a seven-month run of improving business conditions, although the rate of decline was mild as businesses continued to raise their stock levels and labour capacity.
According to monitored firms, customer demand was lower due to rising prices and challenging economic conditions. Also, order book inflows decreased at a modest pace, marking the first contraction since September 2024.
The latest survey also pointed to a solid increase in input prices at Kenyan companies, as the rate of inflation crept up to its fastest pace in four months.
This, in turn, led to total business output contracting at the fastest rate in ten months in May, although the overall downturn was only slight. Consequently, the lower demand and a lack of new projects reportedly led businesses to reduce their purchasing activity in May.
Readings above 50.0 signal an improvement in business conditions, while readings below 50.0 indicate a deterioration.
By having a 49.6 reading, this indicated a decline in the health of the private sector economy, with declines generally driven by the construction, wholesale & retail and services sectors.
“The Stanbic Kenya PMI signalled fragility in the private sector’s recovery. There was a moderate contraction in output and a decline in new orders after seven months of expansion,” noted Christopher Legilisho, an economist.
He added:”Purchasing activity was also down, reflecting a lack of new projects. Consumers remain hesitant to spend due to concerns about their economic state and the dim outlook.”
Despite the decline, employment levels in the private sector economy increased for the fourth consecutive month in May.
Meanwhile, private sector firms in Kenya as is the trend this year, showed only modest optimism towards future activity levels. Just four per cent of panellists expressed a positive outlook, and expectations were the second-lowest in the survey's history.
Those firms that were optimistic linked forecasts to a rise in output to planned branch openings, expanded marketing plans and new products.
