CEOs monthly business forecast drops to historic low in February

ONLY five per cent of firms in Kenya are forecasting growth in the near future amid ongoing concerns about the wider economy and high competition.

This is the lowest growth sentiment by businesses in the country’s history, a harsh indictment to the Kenya Kwanza regime that rose to power through the popular bottom-up economic model.

Late last year, the International Monetary Fund (IMF) cut Kenya’s economic growth forecast for this year and 2025 by nearly one percentage point, marking the largest downgrade among major regional economies in under a year.

The February Purchasing Managers’ Index (PMI) by Stanbic Bank attributes this to rising inflation, depressed liquidity and potential volatilities in the global market.

Captain of industries interviewed in the survey are, however, optimistic that the January’s monetary policy decision to cut the base lending rate to 10.75 per cent will increase liquidity in the market, enabling firms to expand and potentially create employment.

Nevertheless, businesses reported another improvement in operating conditions in February, continuing the growth streak that began in late 2024, as survey evidence signaled that a greater stabilisation of the wider economy drove higher demand and output.

Lower than expected inflationary pressures also supported the upturn, as both input and output prices rose at the slowest rates for four months.

The growth signal derived from the latest survey was relatively mild in February, particularly as several businesses continued to report challenges boosting sales.

Employment and inventories also rose only slightly, in line with a subdued outlook for year-ahead activity.

The headline PMI rose mildly by 10 basis points in February to 50.6 points from 50.5 points the previous month. This was consistent with a strengthening business condition for the fifth month running.

However, the reading was below its long-run average of 51.2 and signaled only a marginal overall improvement.

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

According to the survey, business activity grew for the fifth straight month and at the quickest pace since November last year.

“Firms signaled that a general uplift in the economic environment had strengthened demand and led to an increase in output. Several firms also reported expanding their product offerings and investing more in marketing,’’ the PMI report reads.

The volume of new orders also rose for the fifth month in succession, with improving cash flow, softer price pressures and new products and services encouraging increased demand.

However, many firms reported challenges in boosting sales, resulting in an overall rate of new business growth that was only slight.

Sector divergences were apparent in February, with output and new business growth driven by agriculture, manufacturing and construction.

Meanwhile, wholesale, retail, and services firms recorded declines in activity, new work, and purchase of inputs.

“February data indicated a further softening of input cost inflation across the private sector. Average input prices rose at the slowest pace in four months, due to a weaker increase in purchase prices.”

The survey shows that firms made only limited improvements to staffing and inventories. Although employment growth recovered to a four-month high, it was weaker than its long-run trend.

Similarly, the uplift in stocks was below average, as purchasing activity fell for the first time since July 2024.

Christopher Legilisho, Economist at Standard Bank says that the February PMI for Kenya shows a private sector still growing, though only slightly faster, amid still weak demand.

Legilisho observes the improvements in demand conditions were not widespread across all sectors surveyed with businesses experiencing weaker output and new orders growth as consumers under increased financial pressure.

“Further, there was less input buying in services as well as wholesale and retail in February. We reiterate that businesses remain doubtful about future output expectations,’’ he says.

Even so, he is optimistic that lower interest rates may well resuscitate lending among firms and thereby drive economic activity.