Kenya's private sector activity experienced a slight contraction in March, signaling a pause in the steady growth observed in recent months.

The Stanbic Bank Kenya Purchasing Managers' Index (PMI)—a critical gauge of private sector health—retreated to 49.7 in March, down from 51.3 in February, indicating the delicate balance businesses are navigating amid evolving economic pressures.

February optimism, which marked the first instance since Auguust of the PMI crossing the pivotal 50.0 threshold, signaling growth, was tempered by March's figures that underscored the ongoing challenges facing businesses.

"The contraction in output, new orders, and purchasing activity can be atributed to diminished sales and tightening cash flow," explained Christopher Legilisho, Economist at Standard Bank.

Despite a dip in inflation to 5.7 percent in March, a stronger shilling against the US dollar and intensified marketing efforts, consumer demand remains subdued, largely due to persistent cost of living pressures.

The survey highlighted a modest contradiction in business output, primarily driven by a drop in new orders and ongoing cash flow issues, albeit the decline in new orders was marginal.

Companies pointed to eased price pressures, which somewhat supported customer spending, indicating a complex set of factors influencing business conditions.

Read also: February private sector activity rises highest in over a year

Expand inventories

In a silver lining amidst the challenges, companies continued to hire and expand their inventories in anticipation of future demand improvements.

"Business expectations for 2024 have seen a  modest recovery, particularly among wholesale and retail service firms," Legilisho added, referring to the bounce back from Fenruary's record-low future expectations index.

Fuel prices and a stringer shilling against the dollar in March have contributed to easing input, purchasing, and output price pressures. Pump prices, in particular, saw a reduction in the latest regulatory review, aligning with a 19 percent appreciation of the Kenyan Shilling against the dollar since the year's start. Additionally, firms experienced stable staff costs for the second consecutive month.

However, the weaker sales have led firms to reduce their input purchases, recording the fastest rate of decrease since last November. This reduction in purchasing contributed to shorter supplier delivery times, reflecting decreased pressure on vendors.

Despite the challenges, firms managed to increase their inventories for the second month in a row, fueled by the hope of a resurgence in customer demand. This resilience highlights the Kenyan private sector's cautious optimism and adaptive strategies in the face of fluctuating market conditions and economic indicators.

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