Kenya’s private sector has kicked off the year on a high with further expansion in the manufacturing and service sectors.

According to January’s Purchasing Manager’s Index (PMI), the growth was boosted by the rising demand levels which led to increased output and employment.

Notably, operating conditions recorded the highest pickup, an 11-month high, leading to a strengthening of business confidence and increased stockpiling efforts.

However, the data notes that businesses remain hit by the re-accelerating inflationary pressures as well as higher tax burdens and further depreciation of the Kenyan shilling against the dollar.

“Output charges rose at a faster rate accordingly, although inflation of both costs and charges remained well below the highs recorded in 2022,” the data reads in part.

The headline PMI picked up for the third consecutive month to 52.0 in January, rising from 51.6 in December, posting above the 50.0 neutral mark for the fifth month running.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

The headline index signaled a quick increase in new business volumes, which rose at the quickest pace in a year with firms registering growth, linking it to greater marketing efforts.

Many businesses were nonetheless noted to continue to struggle due to a lack of cash and weak household spending.

For the second month running, construction was the only monitored sector to see a decline in sales, contrasting with rises in agriculture, manufacturing, services and wholesale and retail.

Kenyan firms subsequently increased their output levels in January, with the rate of expansion picking up to a four-month high.

Employment also rose, though only marginally as some firms struggled to keep staff due to a lack of money.

Limited hiring led to a rise in outstanding business for the first time since last October, the data reads.

Mulalo Madula, Economist at Standard Bank says the year starter survey results reflect a positive picture for the Kenyan economy in line with the growth series.

“The country’s private sector activity held up well into January, with new business rising for the fifth consecutive month, spurring higher output and consequently, employment growth," Madula said.

"Notably, the influx of new business reflects improved marketing efforts which is a recommendable path in exploring the emerging  markets.” 

He added that domestic demand also supported growth along with a modest recovery in exports after exports plunged to a nine-month low in December.

However, he is optimistic that exports are likely to be boosted by floriculture exports, which typically increase in February to accommodate the high demand for flowers during Valentine's Day.

Moreover, he predicts that the sector will likely get another boost from a potentially stronger EUR this year.

However, persistently high inflation has raised concerns that price pressures will remain elevated and weigh on economic activity and consumption for some time to come.

Wholesalers and retailers, on the other hand, are particularly optimistic about the year ahead, as January data showed a significant increase in business expectations for the rest of the year.