Kenya’s private sector experienced a clear cooling trend in March 2026, with business conditions deteriorating for the first time since August 2025. The headline Purchasing Managers’ Index (PMI) dropped to 47.7, down from 50.4 in February, marking the fourth consecutive month the index has declined from the previous period.
The downturn was largely demand-led, as firms reported solid declines in both output and new orders after six months of continuous expansion.
Several critical factors constrained activity and led to the drop in PMI:
- Household Pressures: Many businesses pointed to tighter household budgets, reduced cash circulation, and constrained customer spending as primary drivers for lower order volumes.
- Geopolitical Conflict: The war in the Middle East introduced external shocks, leading to more cautious spending patterns and causing significant disruptions to international transport and customer deliveries.
- Logistics Constraints: The conflict contributed to logistics bottlenecks and higher prices for fuel and transport, further dampening sales and operational efficiency.
Kenyan companies faced intense cost pressures at the end of the first quarter. Purchasing prices rose at their sharpest rate in just over two years, driven by higher taxes, rising fuel and transport costs, and increased shipping expenses linked to the war.
Despite these surging input costs, firms were largely unable to pass them on to consumers. Output prices rose at a much slower pace, as businesses offered discounts and mark-ups were restrained by subdued demand and heightened competition. Christopher Legilisho, Economist at Standard Bank, noted that firms chose to absorb these costs rather than risk further alienating financially stretched clients.
While output and demand struggled, the labor market showed relative stability. Employment continued to grow, though the rate of increase was the softest recorded since October 2025. This resilience was primarily driven by firms in the agrarian sector.
Outstanding business fell at the most pronounced rate in almost six years, allowing firms to catch up on workloads even as new orders slowed. Companies shifted toward holding leaner inventories to manage cash constraints, avoid “dead stocks,” and respond to the slowing order pipeline.
PMI Outlook and Future Strategy
Despite the current challenges, business optimism remained strong and resilient. Just over a fifth of respondents forecasted growth for the next 12 months, a sentiment that remained broadly unchanged from February.
Firms are looking toward several strategic pillars to underpin recovery. Some firms have plans to open new branches and invest in capacity and human capital. There is also increased effort in advertising and online marketing to recapture demand.
“A weaker Stanbic Kenya PMI in March reflects demand-side concerns – softer spending power constraining demand – and supply-side concerns about the war in the Middle East. Output and new orders declined in most sectors, implying that businesses expect to be constrained by the disruptions from geopolitical tensions.
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. Slowing demand meant subdued increases in quantities purchased and inventories, though delivery times improved.
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.” Christopher Legilisho, Economist at Standard Bank
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