Kenya’s private sector returned to growth in July for the first time in five months.
This signals gradual economic recovery from a prolonged period marked by weak consumer demand, high operating costs and geopolitical shocks.
The latest Stanbic Bank Kenya Purchasing Managers’ Index (PMI) rose to 51.3 in July, up from 50.0 in June, crossing the crucial 50-point threshold that separates expansion from contraction.
“The improvement signals a moderate recovery in business conditions after months of subdued activity and is the strongest indication yet that firms are beginning to regain confidence in the economy,” the index reads.
The July reading also marks a significant turnaround compared with earlier months this year.
The PMI had fallen into contraction territory in March before deteriorating further through April and May, reaching 46.6 in May, the weakest reading in several months.
The report says that business conditions stabilised in June before returning to expansion in July, reflecting a gradual but notable improvement in demand.
According to the survey, the recovery was driven primarily by the strongest increase in new orders since January.
Businesses reported attracting more customers through referrals, aggressive marketing campaigns and the introduction of new products and services.
“The stronger demand encouraged firms to increase hiring, with employment growing at its fastest pace this year as companies recruited temporary workers to meet rising workloads.”
Business confidence also climbed sharply, reaching its highest level since February 2023 as firms expressed optimism about future sales, expansion into new markets, innovation and supply chain improvements.
The improvement comes after several difficult months for Kenyan businesses.
Earlier in the year, companies faced mounting pressure from high fuel prices, elevated transport costs, tight liquidity, subdued consumer spending and uncertainty arising from global supply chain disruptions linked to the conflict in the Middle East.
Rising operating costs squeezed profit margins, forcing many firms to either absorb higher expenses or cautiously pass them on to consumers.
Although demand improved in July, production continued to contract for the fifth consecutive month, highlighting that businesses are still struggling to convert stronger orders into higher output fully.
Stanbic attributed this mismatch partly to persistent inflationary pressures, constrained liquidity and delays in receiving imported inputs.
Most of the pressure emanated from the uncertainties in the global fuel market due to the ongoing war conflict in the Middle East, triggered by the US, Israel and Iran.
On Tuesday, US President Donald Trump hinted at progressive talks between worrying functions, a move that saw the average price of a barrel of crude oil drop by five per cent.
The price of Brent crude, the global benchmark for oil to about $84 (Sh10,852) a barrel.
Around 37 per cent of surveyed firms reported higher operating costs, largely driven by fuel prices, transportation expenses and shortages of raw materials.
Despite these headwinds, Kenya’s broader macroeconomic environment has become considerably more supportive compared to a year ago.
One of the biggest stabilising factors has been the remarkable resilience of the Kenyan shilling.
After experiencing sharp volatility in previous years, the currency has remained relatively stable, helping reduce imported inflation and providing businesses with greater certainty when purchasing raw materials and servicing foreign obligations.
The shilling is currently exchanging at 129.20 units against the US dollar, a position it has maintained for the past 22 months after initial setbacks that saw it drop to an all-time low of 160 units in January 2024.
The Central Bank of Kenya has complemented the currency stability with a gradual easing of monetary policy.
In June, the MPC retained the base lending rate at 8.75 per cent.
The regulator used its benchmark rate to signal the direction of interest rates, trimming the reference in 10 meetings from 13 per cent in August 2024 to the current 8.75 per cent on stable inflation.
Commercial banks expect the master bank to keep its benchmark rate unchanged at 8.75 per cent at its policy meeting next week amid ongoing uncertainty in the Middle East, which has kept the apex bank on edge over inflation expectations.
Speaking to journalists during the last post-Monetary Policy Committee (MPC) briefing, Governor Kamau Thugge argued that stable inflation, adequate foreign exchange reserves and exchange rate stability provide a strong foundation for economic recovery and renewed investor confidence.
Kenya has also continued attracting foreign investment into key sectors including manufacturing, financial services, technology, renewable energy and infrastructure.
The country’s external position has equally strengthened, with foreign exchange reserves remaining comfortably above the statutory import cover requirement, while robust diaspora remittances, tourism earnings and agricultural exports have continued supporting the balance of payments.
International institutions have also expressed growing confidence in Kenya’s economic management.
The International Monetary Fund and the World Bank continue to support Kenya’s fiscal reform programme, noting improvements in debt transparency, fiscal consolidation and debt management despite the country remaining at high risk of debt distress.
Recent IMF technical assessments observed that Kenya’s debt statistics are broadly accurate and timely while encouraging continued reforms to enhance transparency and reduce borrowing costs.
Similarly, international credit rating agencies have become more optimistic about Kenya’s outlook.
Moody’s improved its outlook on Kenya’s sovereign rating, while Fitch and S&P have acknowledged improvements in external liquidity, stronger foreign exchange reserves, resilient export earnings and prudent debt liability management.
The National Treasury has attributed these improvements to disciplined fiscal reforms, active debt management operations and efforts to lengthen debt maturities while reducing refinancing risks.
