After seven months of steady recovery, Kenya’s private sector has hit a wall, with May 2025 marking the first reduction in business activity since September 2024.
The downturn, revealed in the latest Stanbic Bank Kenya Purchasing Managers’ Index (PMI), shows that rising costs and falling demand are beginning to strain the country’s post-pandemic recovery.
The PMI fell to 49.6 in May, down from 52.0 in April, marking a decline below the 50.0 mark that separates growth from contraction.
Although it is a modest dip, it shows mounting economic pressure.
Moreover, the change in trajectory has ended a seven-month streak of improving conditions and introduced new uncertainty for Kenyan firms that had begun to regain confidence.
“The Stanbic Kenya PMI signalled fragility in the private sector’s recovery. There was a moderate contraction in output, and a decline in new orders after seven months of expansion,” noted Christopher Legilisho, Economist at Standard Bank.
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Why Kenya’s Private Sector is Falling
According to the Stanbic Bank PMI, rising costs and tax pressures are a key driver behind the contraction.
Businesses reported that input prices rose at their fastest pace in four months, with many explaining that increased purchase prices and higher tax burdens contributed to the fall.
Further, the manufacturing sector was the most affected, with rising material costs linked to tax and customs obligations.
However, despite the pressure, selling prices increased only slightly, meaning that Kenyan businesses are absorbing more costs to try to maintain their customers.
Consequently, new order inflows dropped, ending a streak of growth that began in late 2024.
Around 28% of surveyed firms reported a decline in demand, attributing it to cautious spending, economic instability, and high prices.
Output also contracted, especially in construction, wholesale, retail, and services sectors. The only areas showing some resilience were agriculture and manufacturing.
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Employment in the Private Sector
Despite the challenges, employment rose for the fourth consecutive month, although marginally, as some businesses hired casual workers to meet existing obligations.
On the other hand, backlogs of work remained steady, and supplier delivery times continued to improve.
However, future expectations are not positive, with only 4% of businesses expecting output to rise in the next 12 months. According to the report, that is the second-lowest optimism reading on record.
Those with a positive outlook attributed potential branch openings, new marketing strategies, and product launches, but the broader mood remains subdued.
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