Kenya’s private sector activity slowed down in February, with new data showing business conditions were on the brink of stagnation as sales growth weakened and firms scaled back expansion plans.
The latest Purchasing Managers’ Index (PMI) by Stanbic Bank shows the headline reading fell to 50.4 in February from 51.9 in January, marking the third consecutive monthly decline.
While the reading remains above the neutral 50.0 threshold, signalling expansion, it points to only a marginal improvement in business conditions and the slowest upturn in the current six-month growth streak.
Output volumes across the private sector were close to stalling during the month, as growth in new orders softened to its weakest level in six months.
About 33 per cent of surveyed firms reported higher activity, compared to 32 per cent that recorded a decline, underscoring the fragile state of demand.
Businesses cited increased competition, low consumer purchasing power and lingering macroeconomic pressures as key constraints.
“While the outcome was still expansionary, some businesses were hampered by increased competition and a doubtful economy. Although macroeconomic conditions have improved, the broader economy has not yet seen the benefits,” Christopher Legilisho, Economist at Standard Bank, said.
While some firms supported sales through new product launches, expanded marketing and price promotions, overall demand conditions remained subdued.
Sectoral performance was mixed. Construction, wholesale and retail trade, and services recorded growth in sales, while agriculture and manufacturing posted contractions, reflecting uneven recovery across the economy.
The slowdown in new business growth had a knock-on effect on purchasing activity, which rose at a slower pace in February.
Inventory accumulation also eased, with stocks increasing at the slowest rate in seven months.
While companies continued to benefit from shorter delivery times, the rate of improvement eased from January amid reports of busy vendors, road traffic and port congestion.
At the same time, Kenyan companies signalled that workloads were still busy and even struggled to complete backlogs on time.
To ease pressure on staff and manage backlogs, companies sustained hiring, extending the current run of job creation.
Inflationary pressures showed signs of easing. Overall input costs rose at the slowest pace in three months, helped by softer increases in purchase prices and staff wages.
However, firms continued to report higher material costs and the impact of increased VAT as drivers of expenses.
With cost pressures moderating and competition intensifying, companies passed on only a fraction of higher costs to consumers.
Output prices rose at the weakest pace since November, as businesses opted for discounts and promotional strategies to defend market share.
Despite the slowdown, business confidence about the year ahead remained relatively firm.
“Expectations for the next 12 months held steady; about a fifth of firms in the survey remain optimistic about future output. Further, job growth momentum was sustained, signaling underlying improvement in the private sector,” Legilisho noted.
Optimism levels remain above the average recorded in 2025.
