Business confidence falls to 10-year low despite private sector growth

Traders at Soko Mjinga Market in Nyeri. [Kibata Kihu, Standard]

Kenya's private sector activity registered growth in March, but it was also marked by a deterioration in confidence among businesses, which dropped to its lowest level in a decade.

Business conditions, according to the latest Stanbic's Purchasing Managers' Index (PMI), improved on account of growth in orders from customers but also boosted by good weather.

PMI measures the prevailing direction of economic trends in different sectors. During March, the headline PMI rose from 50.6 in February to 51.7 in March, which indicates a stronger improvement in business conditions at the end of the first quarter of 2025.

It was also the highest reading since May 2024 and above the series average of 51.2.

The survey noted that firms highlighted a sharper increase in new business inflows, with growth accelerating to its fastest in just over two years.

Businesses surveyed said they gained new customers and saw positive impacts from marketing and favourable weather conditions.

Expanded business activity was driven by growth in nearly all sectors except manufacturing, which contracted in March.

"The March Kenya PMI shows a private sector with faster growth in output and new orders, assisted by increased customers, good weather, and sustained marketing. However, the upturn was not broad-based, with some firms and certain sectors feeling the downside of weaker consumer demand," said Christopher Legilisho, economist at Standard Bank.

"Still, there were robust expansions in output and new orders across several sectors, such as services, wholesale, and retail. Only the manufacturing sector exhibited soft demand.

"Pricing pressures were at their softest in five months due to restrained increases in input and purchase prices. Staff costs rose only slightly. The agricultural and construction sectors were key in driving increases in input prices, but manufacturing input costs declined, contributing to output prices rising only marginally. Kenyan businesses remain uncertain about future output expectations."

The PMI survey noted that the uplift in sales supported a faster expansion in business activity across the private sector economy in March.

Output increased at the quickest pace since May 2024, with firms generally indicating that they were able to boost activity to match order volumes.

Confidence in the Kenyan economy among companies remained weak, with a majority of business leaders shelving plans to expand operations over the next year.

"The Future Output Index continued to fall in March, dropping to its lowest level since the survey began in January 2014. Only two per cent of monitored firms responded with a positive forecast for business activity over the next 12 months. These panellists highlighted plans to open new outlets, add to their products and services, and rebrand," said the survey

Despite low optimism, firms increased their hiring, with employment rising for a second consecutive month while staff costs rose for the third month in a row as firms raced to fulfill new orders..

"Employment levels at Kenyan businesses rose for the second consecutive month in March. However, as was the case in February, the increase in staff numbers was mild," said the survey.

"March data indicated a third consecutive monthly increase in average staff costs at Kenyan companies. The rate of inflation was marginal, but the fastest in five months. That said, most respondents (99 per cent)) registered no change in their labour expenses."