Business strain deepens as index dips on weak demand

By , July 4, 2025

Kenyan firms across multiple sectors faced a challenging month in June, grappling with weakened consumer demand, operational pressures, and renewed street protests that disrupted commerce and mobility.

These compounded challenges led to sluggish sales and reduced productivity, piling additional strain on businesses already coping with elevated input costs and shrinking customer spending power.

According to the Stanbic Bank Kenya this resulted to the Purchasing Managers’ Index (PMI) dropping to 48.6—the sharpest decline in nearly a year—falling well below the neutral 50-point threshold that separates growth from contraction.

The PMI, a widely watched gauge of private sector activity, captures key indicators including output, new orders, employment, delivery times, and inventory levels. A reading above 50 signals business expansion, while a figure below indicates a slowdown.

“In June, the Stanbic Kenya PMI contracted for a second consecutive month, with the headline index showing weaker overall business conditions,” said Christopher Legilisho, economist at Standard Bank. “The dip in activity was due to output and new orders contracting because of weaker consumer spending, challenging economic conditions, and social protests reappearing in June.”

Retailers, manufacturers, and service firms all reported a drop in customer activity, leading many to scale back operations. The volume of new business declined, prompting firms to cut back on purchases and production. Procurement activity recorded its steepest drop since July 2023, a clear sign of growing caution amid softening demand. While outstanding work levels dipped slightly, companies remained guarded in restocking, anticipating better conditions in the months ahead.

Inventory levels soar

On a more positive note, inventory levels rose for a sixth consecutive month—at the fastest pace in almost three years. This was partly due to improved supplier performance, faster delivery times, and hopes of economic recovery. Some firms, however, continued to report port delays and raw material shortages. Supplier lead times improved significantly, aided by reduced road congestion and competitive pressures among vendors.

Despite weaker demand, hiring showed signs of resilience. Employment rose for a fifth month running, reflecting improved expectations among firms about future business conditions. “Employment grew, and inventories expanded, likely related to improved expectations for businesses over the coming year, with sentiment hitting a peak not seen since May 2024,” Legilisho added.

Forward-looking sentiment was noticeably stronger, with 20 per cent of firms anticipating increased output over the next year. Many linked their optimism to pipeline improvements and easing demand constraints.

Input costs rose at their fastest pace since January, largely due to increased wages.

“Input prices, purchase prices, staff costs and output prices all increased in June but only matched, or came below, the long-term average—implying that inflationary pressures are both low and contained… Price increases reflect concerns about the increased tax burden being faced by businesses,” said Legilisho.

Analysts caution that without stronger consumer confidence and greater political stability, private sector momentum may remain subdued. However, the data suggests that firms are adapting to short-term turbulence while positioning themselves for a potential recovery later this year, supported by better supply chains, manageable inflation, and proactive inventory strategies.

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