Kenya’s PMI Improves to 50.0 as Business Conditions Stabilise in June

Kenya’s private sector showed signs of recovery in June after three consecutive months of contraction, with the latest Purchasing Managers’ Index (PMI) indicating stabilising business conditions despite mounting cost pressures.

According to the latest report released by Stanbic Bank Kenya, the headline PMI rose from 46.6 in May to 50.0 in June, marking a return to the neutral threshold that separates expansion from contraction in business activity.

The improvement was largely driven by a modest recovery in new customer orders and growing business confidence, although rising fuel levies continued to exert pressure on firms through higher operating costs and increased selling prices.

New Orders Return to Growth Territory

One of the key highlights of the June report was the return of new business orders to growth for the first time since February 2026.

Businesses attributed the increase in demand to customer referrals, aggressive marketing campaigns and expansion initiatives aimed at attracting new clients and entering fresh markets. However, the recovery in demand remained modest as high prices continued to weigh on consumer spending.

Despite the increase in orders, many companies reported that output remained subdued due to weak customer footfall, supplier constraints and higher production costs. This marked the fourth consecutive month of declining business activity, although the pace of contraction slowed compared to May.

Fuel Levies Push Costs to Record Levels

The report identified rising fuel levies as the biggest contributor to the surge in business costs during June.

Higher fuel prices increased transportation expenses and pushed up the cost of essential inputs including food products, paper, information technology equipment and construction materials. Around 41 per cent of businesses surveyed reported higher input costs during the month.

The increased costs forced many firms to raise prices charged to consumers, resulting in the fastest increase in output charges since the PMI survey began in Kenya in 2014. Approximately a quarter of businesses increased their prices during June, compared to only two per cent that lowered them.

Economists warned that the latest price pressures could persist for longer than the fuel-driven inflation shock experienced in 2022.

Business Confidence Hits Three-Year High

Despite the difficult operating environment, Kenyan businesses expressed their strongest confidence levels in more than three years.

The Future Output Index climbed to its highest level since February 2023, with approximately 33 per cent of firms expecting growth over the next 12 months while only one per cent anticipated a decline.

Businesses cited expansion into new domestic and international markets, increased investment in technology and enhanced marketing efforts as major factors supporting their optimism.

Many firms also expressed hope that declining global oil prices could eventually translate into lower fuel costs and ease pressure on operating expenses.

Employment and Stock Levels Rise

The improvement in business sentiment also encouraged firms to increase hiring and rebuild inventories.

Employment levels increased moderately during June following a slight decline in May, with many firms citing rising orders and renewed pressure on production capacity as reasons for recruiting additional staff.

At the same time, companies increased stock purchases for the third consecutive month as businesses prepared for expected growth and attempted to protect themselves against possible supply shortages.

However, supplier delivery times worsened for the first time since January 2025 as transport costs and product shortages disrupted supply chains. The delays were the most severe recorded since April 2020.

Economist Sees Recovery but Warns of Inflation Risks

Christopher Legilisho said the June PMI figures point to a gradual recovery after months of weak performance.

He noted that while new orders and sales volumes improved, businesses continued to struggle with soft customer demand and growing inflationary pressures.

Legilisho also warned that the sharp increase in both input and output prices could prolong the current inflation cycle, although falling international oil prices may eventually offer some relief to businesses and consumers alike.

What the PMI Means for Kenya’s Economy

The PMI is widely regarded as one of the most important indicators of economic health because it provides an early snapshot of business activity across key sectors including manufacturing, construction, agriculture, retail and services.

A reading above 50 signals improving business conditions while a figure below 50 indicates deterioration.

Kenya’s return to the neutral 50.0 mark suggests the economy may be emerging from recent weakness, although persistent inflationary pressures and rising operating costs remain significant challenges for businesses in the months ahead.

For policymakers and investors, the June PMI report offers cautious optimism that Kenya’s private sector recovery is beginning to gain momentum even as businesses continue to navigate one of the toughest cost environments in recent years.