Kenya: Private Sector Activity Falls Back into Decline in August

07:55

The Kenyan private sector experienced another slowdown in August. According to the PMI index from Stanbic Bank Kenya, activity contracted for the first time in three months, hampered by rising raw material costs, cash flow tensions, and supply chain difficulties.

PMI Drops Below Growth Threshold

The Kenyan economy shows signs of fragility as summer comes to an end. The Purchasing Managers' Index (PMI) from Stanbic Bank Kenya stood at 49.7 points in August, down from 51.3 in July.

This decline brings the indicator below the symbolic threshold of 50 points, which separates activity expansion from contraction. This marks the first contraction in the private sector in three months.

The deterioration reflects a reduction in production and purchases by companies, even as demand remained relatively robust.

Rising Costs Complicate Recovery

For businesses, the main challenge now lies in their ability to translate demand into actual activity. The increase in raw material prices and cash flow constraints limit their operational margins.

This situation is prompting some companies to lower their production volumes and purchases, amid ongoing supply chain difficulties that continue to weigh on activity.

The observation highlights a mismatch between demand and companies' ability to respond. Even when order books improve, financial constraints and rising input costs can hinder production acceleration.

Inflation Remains Under Watch

Cost pressures are also reflected in macroeconomic data. Annual inflation in Kenya slightly increased in August, reaching 6.6%, up from 6.5% in July, according to the national statistics office.

This development, although limited, comes at a time when businesses are already grappling with high production costs and tighter liquidity.

Maintaining inflation above 6% is therefore a point of concern for economic actors, particularly in sectors dependent on raw materials and supply chains.

Growth Prospects Still Strong

Despite this temporary slowdown, Kenyan authorities maintain a relatively optimistic outlook for the coming years.

The Ministry of Finance forecasts economic growth of 5% in 2026, followed by an acceleration to 5.1% in 2027 and 5.2% in 2028.

These projections are based on the assumption of a gradual improvement in activity. However, the PMI decline in August serves as a reminder that this trajectory may remain irregular, especially if cost and cash flow tensions persist.

For the private sector, the challenge will be to meet demand while managing the burdens affecting production. The ability of companies to regain sufficient financial margins could be crucial in confirming the recovery anticipated by the authorities.