Kenya’s Private Sector Growth Slows Amid Weak Demand

Private sector activity weakened at the start of 2025, driven by challenging economic conditions and reduced client demand.

The Stanbic Bank Kenya Purchasing Managers’ Index (PMI), which assesses business conditions in Kenya’s private sector, recorded a reading of 50.5 in January, slightly down from December’s 50.6.

Although this marks the fourth consecutive month of growth, the expansion did not translate into higher output. Production slowed to its weakest pace in the current growth phase, hindered by economic challenges and declining client demand.

The index indicates a loss of momentum, with January’s output growth being the slowest in the four-month expansion period.

Similarly, sales growth weakened to its lowest level since October 2024. In response, firms reduced purchasing activity, while employment declined slightly, ending a three-month hiring streak. Most businesses, however, maintained stable staffing levels.

Companies attributed rising sales to new client referrals, enhanced marketing efforts, improved cash flow, and easing inflationary pressures.

Inventory levels also increased as firms boosted stock purchases to support business operations. According to Standard Bank economist Christopher Legilisho, businesses expanded their stock purchases and inventory holdings to accommodate higher sales and prepare for potential future supply challenges.

“Some firms, however, faced harsh economic conditions. Despite this, employment remained relatively stable. Kenyan businesses reported a rise in purchase prices for imported commodities, though at a slower rate than the previous month, largely due to higher taxes,” said Legilisho.

Price pressures continued but eased from December’s 11 month peak. Although inflation remained strong, its pace of increase slowed. Businesses responded to rising costs by raising prices, though the hike was the smallest in three months.

“Sales growth also slowed to its weakest level since last October. Consequently, Kenyan firms reported a more moderate increase in purchasing activity at the beginning of the year,” the index notes.