Business uncertainty persists amid higher February output

The shilling’s depreciation has eased in recent weeks. [Wilberforce Okwiri, Standard]

Business leaders do not expect growth over the next year despite improved economic conditions in February. 

According to Stanbic’s Purchasing Managers’ Index (PMI), only six per cent of the executives who were interviewed for the survey expect growth over the next 12 months. 

The PMI - which measures the prevailing direction of economic trends in different sectors – showed that business activity registered an improvement for the third month in a row in February, with firms getting more orders, increasing their output and hiring more.

The low level of confidence, however, suggests a broad degree of uncertainty that activity growth will be sustained, according to the PMI report.

Kenyan firms have been grappling with various factors that have worsened the business environment in recent years.

While some of these, including high inflation and the shilling’s depreciation, have eased in recent months many executives remain on edge as some of the challenges such as weak consumer demand, high tax rates, cost of energy and fuel prices persist.

“Business activity expectations slipped to their weakest on record in February,” said Stanbic.

“Although staying above the 50.0 neutral mark to signal overall positivity about the next 12 months, the Future Output Index indicated a subdued outlook among Kenyan businesses.”

“Indeed, only six per cent of respondents expect growth of output. Mild optimism was seen in four out of the five broad sectors, while construction firms  were neutral about their activity prospects.”

According to the report, the headline PMI stood at 51.3 in February, up from 49.8 in January.

Stanbic explains that readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration. 

“The headline index rose for the third consecutive month in February, taking it above the 50.0 neutral threshold for the first time since last August,” said Stanbic in the PMI report.

“At 51.3, up from 49.8 in January, the index was also at its highest level in just over a year, with positive directional influences seen in all five of its sub-components.”

Among the factors that led to expanded business activity across the private sector include softening inflationary pressures that led to an increase in new business for companies and lower fuel prices.

It noted that lower fuel prices during the month helped to cool input cost inflation to a 26-month low. 

The improved conditions saw Kenyans expand their staffing levels at a faster rate compared to January.

“Staffing levels at Kenyan companies grew for the second straight month during February, further offsetting a four-month period of decline at the end of 2023,” said the PMI report.