Kenya Private Sector Slumps as Rising Costs Hit Demand

Kenya’s private sector activity contracted for a third consecutive month in May, with businesses facing weaker demand and mounting cost pressures linked to higher fuel prices and inflation.

The Stanbic Bank Kenya Purchasing Managers’ Index fell to 46.6 in May from 49.4 in April, marking the sharpest deterioration in business conditions since July 2024. A reading below 50 indicates contraction in private sector activity.

Businesses reported declines in output, new orders and purchasing activity as customers cut spending in response to rising prices. Companies across several sectors cited weaker consumer demand and growing economic uncertainty as key factors behind the slowdown.

A major driver of the downturn was the increase in fuel costs. Kenya’s annual inflation rate accelerated to 6.7 percent in May from 5.6 percent in April, largely due to higher energy prices following disruptions in global oil markets. The increase in transport and logistics costs pushed up operating expenses for businesses and squeezed household purchasing power.

The survey showed that firms continued to face rising input costs, with purchase prices and transportation expenses increasing sharply during the month. Many businesses responded by passing some of those costs on to customers through higher selling prices, further weighing on demand.

Most sectors recorded weaker performance, although manufacturing remained relatively resilient and was the only major segment to register growth during the period. The broader economy, however, continued to feel the effects of elevated fuel prices and supply chain challenges.

Despite the difficult operating environment, business confidence remained positive. Companies expressed optimism that demand conditions would improve over the coming year, supported by expectations of new projects, investment activity and a more stable economic environment.

The latest PMI data reinforce concerns that higher fuel prices are becoming a significant drag on economic activity. Similar trends were observed in April, when businesses reported that rising transport and energy costs were dampening customer spending and increasing operational burdens.

Kenya’s statistics agency nevertheless expects the economy to expand by 4.9 percent in 2026, slightly above the 4.6 percent growth recorded last year. However, economists warn that persistent inflationary pressures and external shocks could pose risks to that outlook if they continue to erode consumer spending and business activity.

The May survey suggests that while Kenya’s economy remains on a growth path overall, businesses are navigating a difficult environment characterised by higher costs, weaker demand and growing uncertainty over the pace of recovery.

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Ferial Haffajee (South Africa)

Most Impactful Work: Her editorship of Mail & Guardian and City Press, and her current role at Daily Maverick.

Short Bio: Ferial Haffajee is a highly respected South African journalist and editor. She has held prominent editorial positions at two of South Africa’s most influential newspapers, the Mail & Guardian and City Press, and is currently an Associate Editor at Daily Maverick, known for its hard-hitting investigative journalism. She is a strong advocate for press freedom.

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