Private sector activity in Kenya defied ravaging floods to grow at the fastest pace in more than one and a half years, largely helped by easing inflationary pressures and stabilising shilling, findings of a closely-watched monthly survey suggested Wednesday.
The Stanbic Kenya Purchasing Managers Index (PMI) — a month-on-month measure for private sector activity such as output, new orders, and employment— rose to 51.8 in May from 50.1 a month earlier.
The growth in the PMI index, the sharpest in 20 months, signals increased business in May compared to April. PMI readings above 50 signal growth in private sector business conditions, while levels below that mark, point to a contraction.
The growth in business activity defied the projection by corporate managers of a slowdown in deals following heavy flooding which started late April through last month, disrupting activities in key sectors of transport, education and trade.
The PMI findings, based on feedback from about 400 corporate managers, showed that services, manufacturing wholesale and retail sectors posted expansion in activity despite the flooding.
Farming and construction activities, however, contracted during the month amidst floods which claimed more than 200 lives and displaced hundreds of thousands of persons.
“Private sector activity was surprisingly strong in May, implying a further improvement in economic activity, as we had expected to see some impact from the recent floods,” Christopher Legilisho, an economist with South African-based Standard Bank, the parent firm of Stanbic Bank, wrote in the PMI report. “Output and new orders recorded strong gains in May as firms reported increased consumer demand.”
Inflation, a measure of the increase in the cost of goods and services over the previous year, was largely unchanged in May at 5.1 percent on steading food and energy costs, slightly increased from 5.0 a month earlier.
The shilling, on the other hand, was largely stable, exchanging at 133.28 units against the bullish US dollar at the close of the month compared to 133.80 units at the start — a marginal depreciation of 1.12 percent.
The easing inflationary pressure amidst the strengthening shilling in a net import economy was expected to free up some cash for expenditure.
The shilling, on the other hand, exchanged at an average of 130.23 units against the globally bullish US dollar, a 2.29 percent gain over April.
The easing inflationary pressures amidst steadying shilling in a net import economy helped cut input costs for the second month running, freeing up cash for firms which enabled them to raise output for the first time since February.
The report further suggests falling inflation helped sales in Kenya’s private sector grow at the strongest rate in nearly one and a half years (since January 2023) in May.
“Encouragingly, input prices fell in May for a second month, with respondents noting a decline in fuel prices and lower imports costs due to a more favourable exchange rate,” Mr Legilisho said. “Meanwhile, output prices increased only slightly. This aligns with our view that inflationary pressures have eased.”
