Kenyan businesses recorded their strongest production outlook in three-and-a-half years in August, despite a fresh deterioration of operating conditions.
The latest Stanbic Bank Kenya Purchasing Managers’ Index (PMI) survey shows that year-ahead output expectations rose to their highest level since February 2023, reflecting stronger confidence in future demand and investment.
Firms with a positive outlook cited planned spending on marketing, capacity expansion, product diversification and new technology as key reasons for expecting stronger output over the coming year.
The optimism came as cost pressures eased, with input price inflation falling to its lowest level since April, improving expectations for future business performance.
Companies also increased hiring for the third consecutive month at an above-average pace as they sought additional capacity to meet anticipated demand growth and planned expansion.
“Firms attempted to soften capacity pressures by raising employment, with workforce numbers increasing at an above-average pace for the third straight month,” wrote Stanbic in the report.
“Year-ahead output expectations ticked up to their highest level since February 2023. Firms with a positive outlook largely related this to planned investment into marketing, capacity improvements, product diversification and new technology.”
The improvement in expectations contrasts with weaker current trading conditions, with the headline PMI falling to 49.7 in August from 51.3 in July, slipping below the 50.0 threshold.
A PMI reading above 50 signals an improvement in private-sector operating conditions from the previous month, while a reading below 50 indicates deterioration.
The August decline was driven by reductions in output and stocks of purchases, while easing demand for inputs reduced supply pressures faced by businesses during the month.
This came as the Kenya National Bureau of Statistics (KNBS) reported that annual inflation—a measure of the increase in the average cost of goods and services over the previous year – shot up to 6.6 percent in August, up from 6.5 percent in July.
Although only slightly higher than the previous month, the reading remained close to May's 6.7 percent, the highest since January 2024, underscoring the wave of price increases that followed the escalation of conflict in the Middle East.
The KNBS data shows transport remained the biggest source of inflationary pressure, with prices rising 15.7 percent over the past year, while food prices rose nine percent.
The Stanbic survey found that firms expecting higher output over the next 12 months were encouraged by planned investment aimed at increasing production capacity and improving their ability to compete.
The employment increase also came as firms continued to face capacity constraints, prompting businesses to strengthen staffing levels rather than allowing existing workloads to restrict future production.
The improvement in confidence comes against a broader easing of monetary conditions, with the Central Bank of Kenya (CBK) cutting its benchmark Central Bank Rate (CBR) during the past year as inflation remained within its target range.
Lower interest rates have gradually reduced the cost of credit, although businesses continue to report challenges in accessing affordable financing and uncertainty over the strength of consumer demand.
