Business activity in Kenya’s private sector contracted in August for the first time in three months, as acute supply bottlenecks and mounting cost pressures forced firms to curb output and purchasing.
The Stanbic Bank Kenya Purchasing Managers’ Index fell to 49.7 in August from 51.3 in July, crossing below the 50.0 neutral mark that separates monthly economic expansion from contraction, survey data showed on Thursday.
While customer demand showed modest resilience with new order volumes growing for a third consecutive month, companies struggled to translate sales into production due to severe cash flow constraints and input shortages.
Rising fuel and raw material bills pushed input costs higher during the month. However, intense market competition limited the ability of businesses to pass increased costs onto consumers, squeezing corporate profit margins.
The downturn aligns with broader macroeconomic headwinds. Kenya’s headline inflation edged up to 6.6% in August from 6.5% in July, driven by increased food and energy costs, according to official statistics agency data.
To tame persistent inflationary pressures and stabilize the Kenyan shilling, the Central Bank of Kenya has maintained a cautious monetary policy stance, keeping borrowing costs elevated and further weighing on private investment.
Despite the August retreat, the National Treasury maintains a medium-term growth forecast of 5.0%, relying on expected agricultural recovery and public infrastructure execution to offset near-term private sector weakness.
