Kenya's private sector contracts for the first time in seven months

Investing.com – Kenya’s private-sector activity fell in March, marking the first contraction since August 2025, as firms reported that constrained consumer spending and disruptions caused by the war in the Middle East led to lower output and new orders.

Standard Chartered Bank Kenya’s Purchasing Managers’ Index fell from 50.4 in February to 47.7 in March, indicating a fourth consecutive month of decline. Readings below 50.0 signal that business conditions are worsening.

The survey, conducted between March 12 and 27, showed that firms reported reduced cash flow as tighter household budgets limited customer spending. The war in the Middle East led to more cautious consumption patterns, logistics constraints affected customer deliveries, and fuel and transport prices rose.

Total order volume fell for the first time in seven months, with the decline described as significant. Companies cut output directly due to weak demand.

Cost pressures accelerated further in March, with purchasing prices rising at the fastest pace in more than two years. Firms cited higher taxes, rising fuel and transport costs, and increased shipping charges as factors pushing up input costs. However, because firms were unable to fully pass higher costs onto customers amid weak demand and intensifying competition, the rate of increase in output prices slowed.

Kenyan businesses held leaner inventories in March to avoid excess stock, manage cash constraints, and cope with a slowdown in the order pipeline. Employment rose only slightly, the weakest growth since October 2025. Backlogs fell at the most significant pace in nearly six years.

Despite the contraction, business confidence remained resilient. Slightly more than one-fifth of respondents expected growth over the next 12 months, supported by plans to expand through opening new branches, increasing advertising and online marketing, broadening product offerings, and investing in capacity and human capital.

Standard Bank economist Christopher Legilisho said that the weakening Purchasing Managers’ Index reflects concerns on the demand side stemming from weak purchasing power, as well as supply-side concerns triggered by the war in the Middle East. He noted that although output and new orders declined, employment remained stable because businesses in the agricultural sector drove hiring.

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