Kenya’s private sector witnessed weak consumer demand and disruptions in March, leading to a drop in business activities for the first time in seven months.
This was mainly occasioned by the Middle East conflict, which has disrupted global commerce.
Latest data shows that the sector lost momentum, leading to a sharp pullback in business activity after half a year of steady growth.
The Purchasing Managers’ Index by Stanbic indicates that companies across the country experienced declines in both output and new orders, signaling a shift in economic conditions largely driven by weakening demand.
This saw the PMI, a key measure of private sector performance, fell to 47.7 in March from 50.4 in February.
A reading below 50 indicates a deterioration in business conditions, marking the first contraction since August 2025 and the fourth consecutive monthly decline.
Economist Christopher Legilisho noted that the drop reflects both demand- and supply-side challenges.
“Softer spending power is constraining demand, while geopolitical tensions linked to the Middle East war are disrupting supply chains,” he said.
“Most sectors reported declines in output and new orders, suggesting businesses expect continued pressure.”
Despite the downturn, employment showed some resilience, supported mainly by hiring in the agricultural sector.
However, overall job growth was modest, and firms reported a sharp reduction in backlogs of work, which was the steepest in nearly six years, pointing to reduced pressure on capacity.
“Despite lower output and new orders, employment conditions held up as firms in the agrarian sector drove hiring. Backlogs declined, while there was reduced optimism about output over the next 12 months,” he noted.
Rising costs remain a major concern for businesses. Companies cited higher taxes, increased fuel and transport expenses, and elevated shipping costs as key drivers of inflation.
Input prices rose at their fastest pace in over two years. Yet, in a sign of weak demand, many firms chose not to fully pass these costs on to consumers, resulting in only marginal increases in selling prices.
“Higher input prices and purchase prices were linked to concerns about taxes and the impact of the war in the Middle East on shipping costs. Output prices increases were subdued as firms declined to pass on costs to consumers in an already weak demand environment,” the index states.
With order volumes falling, many businesses scaled back production and opted to keep inventories lean to manage cash flow and avoid unsold stock.
Still, there were pockets of growth. Some firms reported improved performance driven by marketing efforts, customer referrals, innovation, and expansion into digital sales channels.
However, these gains were outweighed by a broader trend of financially strained consumers and declining sales.
Already analysts are projecting that fuel prices in Kenya are set to increase in the upcoming review, driven by volatility in global oil markets, which is likely to drive up production costs.
Oil prices have already surged sharply, with some trading sessions showing spikes of nearly 20 percent as fears of supply shortages grow.
“Our minister said we have reserves that can take us till the end of April. The main impact will likely be felt in the next procurement cycle,” said climate and energy expert Joab Okanda.
However, the government is holding a hard stance maintaining that the country is fully prepared to deal with the global shocks.
Treasury Cabinet Secretary John Mbadi last week told the National Assembly’s Finance and National Planning Committee that while the country faces exposure to global shocks, there is no cause for alarm as mitigation measures are already in place.
Mbadi assured lawmakers that Kenya’s government-to-government (G-G) oil supply arrangement with key Middle East suppliers would cushion consumers from extreme price spikes.
“The imports for May and June are likely to reflect higher global prices, posing a risk of increases in domestic pump prices with attendant inflationary pressures,” he said.
Looking ahead, Stanbics’ sentiment remains cautiously optimistic amidst a fragile business environment.
While expectations for the year ahead were largely unchanged from February, just over 20 percent of surveyed firms anticipate growth.
Planned strategies include opening new branches, increasing advertising, expanding product lines, and investing in capacity and workforce development.
