Kenyan businesses optimistic of improved economic activity in Q1, 2025

Businesses are hopeful that the first three months of this year will be a turnaround period for the country's economic activity which suffered several headwinds in the past year.

Latest CEOs and Market Perception surveys reveal a majority of private business heads are optimistic that the first three months of this year will record an improved business environment.

Conducted by the Central Bank of Kenya (CBK), the survey reports say the anticipated improvement will be fueled by a combination of favourable market conditions such as further ease in inflation, and increased consumer demand.

They are also hopeful that the regulatory environment will soften to foster growth and expansion.

Notably, 64 per cent of the respondents from banks and non-bank firms expect moderate to strong activity in the period under review, supported by strong demand in transport, wholesale and retail, hospitality and accommodation sectors.

"In January 2025, the economy is expected to be driven by the education sector and increased government spending in relation to the reopening of schools," the market perception report reads.

"In addition, 64 per cent of the respondents expected economic activity to increase during the period on account of low inflation and monetary policy easing, which are expected to improve customers' purchasing power, demand for credit and subsequently the expansion of business activities."

Agriculture sector performance

Furthermore, 36 per cent of respondents expected economic activity to be supported by strong agriculture sector performance due to the ongoing short rains, the report adds in part.

Conversely, elevated taxation and borrowing costs that have continued to suppress demand and investment, and reduced government development expenditure were cited as risks to economic activity by 75 per cent of the respondents.

In the long term, the next 12 months from November 2024, a majority of the CEOs expressed moderated optimism for the Kenyan economy, largely on account of muted consumer demand, high cost of doing business, and increased taxes and levies.

"However, a stable shilling and lower inflation, expectations of interest rates decline in response to monetary policy actions, and favourable weather conditions continue to support growth prospects," the CEOs noted.

"Company growth prospects for the next 12 months show improvement, supported by company-specific strategies to spur growth."

The report explains that the companies expect growth to result from product diversification, employment of internal measures to contain costs, a customer-centric approach to operations, and expectations of enhanced access to financing supported by accommodative monetary policy.

However, subdued consumer demand and liquidity constraints resulting from pending bills and elevated cost of borrowing continue to pose a threat to growth.

Specifically, the agriculture sector is expected to continue recording enhanced performance, supported by good weather prospects and increased demand for agricultural exports.

However, challenges such as increased cost of production, taxes and limited freight capacity for exports continue to impact the sector.

The financial sector on the other hand is noted to continue benefiting from high demand for financial services and innovations aligned with the dynamic customer needs.

The ICT sector is expected to continue benefiting from increased digitization of the economy while the education sector prospects remain positive, supported by increasing demand for educational services and the adoption of virtual educational programmes.

The tourism sector on its part is expected to continue benefiting from the elevated activity during the festivities, and the remaining period of the peak season (December-February).