Stanbic Bank’s PMI Signals Marginal Growth for Kenya’s Private Sector in December 2024

Stanbic Bank has released the Purchasing Managers’ Index (PMI) report for December 2024, offering a detailed analysis of Kenya’s private sector performance. The headline PMI stood at 50.6, signaling a marginal improvement in business conditions despite ongoing challenges. This is the third consecutive month of growth, marking the first full quarter of private sector expansion since late 2021.

What Is the PMI and Why Is It Important?

The Purchasing Managers’ Index (PMI) is a monthly survey-based measure of business activity across various sectors, including agriculture, manufacturing, construction, and retail. Compiled by S&P Global for Stanbic Bank, it is a critical tool for gauging economic trends. A PMI score above 50 indicates growth, while a score below 50 signals contraction. The headline PMI is calculated from five components: new orders, output, employment, supplier delivery times, and inventory levels. For December 2024, the score of 50.6 reflects modest growth, albeit slightly lower than November’s 50.9.

Key Findings from the December 2024 PMI Report

Sectoral Performance and Inflation

Agriculture and manufacturing were the hardest hit by rising costs, experiencing the strongest input and output price inflation. The sharp rise in input prices, driven by currency weakness and higher taxes, led businesses to increase selling prices at the fastest pace in 12 months.

Employment Trends

Employment growth remained fractional, with the agriculture sector being the only one to report notable staffing increases. Other sectors either maintained or reduced their workforce, reflecting cautious hiring amid ongoing uncertainties.

Inventory Management

Businesses actively reduced inventories in December to avoid wastage, marking the first decline in five months. This trend was most evident in the construction and retail sectors.

Supplier Dynamics

Suppliers’ delivery times improved slightly, but at the slowest rate in the past five months. This reflects continued pressures in the supply chain, despite rising demand.

Broader Economic Context

Macroeconomic Stability

Stanbic Bank Economist Christopher Legilisho emphasized the mixed nature of Kenya’s economic environment:
“This is the first quarter of expansion in output since Q4:21, suggesting that the private sector is showing signs of turning around despite the challenges of 2024.” Inflation ended the year at its lowest in 17 years, offering some relief to businesses. The Kenyan shilling stabilized, and government borrowing costs declined, creating a more favorable business environment.

Muted Business Optimism

Confidence in 12-month growth dropped to its second-lowest level in survey history, with only 5% of businesses expecting higher output in 2025. Companies cited plans for new products, expanded operations, and increased marketing as key growth drivers but remained cautious due to rising costs and limited government incentives.

Global Comparisons

Kenya’s PMI performance reflects a moderate recovery compared to global trends. India (58.6) recorded the highest growth globally. The US (54.9) also saw steady recovery, while the Eurozone (48.3) remained in contraction.

Implications for Businesses and Policymakers

For Businesses

Rising costs underscore the need for innovative cost-management strategies, while successful marketing campaigns, as seen in December, could help maintain demand.

For Policymakers

Supporting businesses with tax reliefs and stabilizing the currency could further bolster private sector confidence and encourage long-term growth.

Conclusion

Stanbic Bank’s December 2024 PMI report highlights the resilience of Kenya’s private sector amid inflationary pressures and cautious optimism for the future. While the 50.6 PMI score reflects steady growth, challenges like rising input costs and weak business confidence demand proactive measures from both businesses and policymakers. This comprehensive view underscores the adaptability of Kenyan businesses in the face of adversity, offering a roadmap for sustained recovery in 2025. As Stanbic Bank says, “Kenya is our home; we drive her growth.”