The headline Stanbic PMI (Purchasing Managers’ Index) plunged to 46.6 in May 2026, still struggling to cross the critical 50.0 neutral threshold. This represents a sharp drop from the 49.4 recorded in April and marks the quickest decline in the health of the private sector since July 2024. The downturn was due to accelerating contractions in both business activity and new sales as firms and households struggled with an intensifying cost-of-living crisis.
The downward trend began in March 2026, when the PMI plummeted to 47.7 from 50.4 in February. This marked the first time the private sector had entered contraction territory since August 2025. There was a brief moment of hope in April 2026 as the index climbed back toward the neutral mark, reaching 49.4. The modest recovery seen in April was short-lived as May’s drop signaled the quickest decline in the health of the Kenyan private sector since July 2024.
Stanbic PMI Decline Drivers
Inflation
Inflation has been the primary engine of this economic strain. High fuel prices and transportation costs emerged as the most significant drivers of inflation, increasing operating expenses across multiple industries. These pressures were compounded by geopolitical tensions in the Middle East, which disrupted global supply chains and pushed up shipping costs and the prices of imported inputs.
In May, total input price inflation reached its highest level since November 2023 due to skyrocketing purchase costs for food, fuel, and transport. To protect their margins, most businesses hiked selling prices at the fastest pace in two-and-a-half years, which further dampened consumer demand and led to the fastest decrease in new sales since mid-2025. These mounting price pressures led to greater customer hesitancy, as clients were forced to tighten their budgets, resulting in the fastest decrease in new sales since mid-2025.
Sectoral Impacts
The effects of the downturn were felt across the economy, with most sectors facing significant headwinds while one showed notable resilience.
- Construction and Services: These sectors were the hardest hit, recording simultaneous downturns in both output and new orders. Service providers, in particular, observed the most substantial decline in new business among all monitored segments.
- Agriculture and Wholesale & Retail: While these sectors faced their own challenges, they were the primary drivers of headcount reductions during the month.
- Manufacturing: This sector was the lone bright spot, bucking the wider trend to record growth in production despite the broader economic contraction. However, even manufacturers were not immune to inflation, as they joined all other monitored sectors in raising their output prices.
The persistent lack of new work led to several critical shifts in how businesses operate. May saw the first decline in private sector employment since the start of 2025, ending a 16-month run of job creation. This decline primarily affected temporary staff as firms found they had sufficient capacity to manage dwindling backlogs.
Additionally, firms curtailed their input buying for the first time in eight months due to budget constraints. Inventory levels remained broadly unchanged as companies eased their stockpiling efforts, a shift from the safety stock building seen in previous months.
Despite the current deterioration in business activity, a degree of resilience remains in the future outlook. Business confidence strengthened to its highest level since February 2023. Approximately 21% of respondents forecast an expansion in output over the next 12 months, pinning their hopes on increased advertising, planned investment in product diversification, and an expanding online presence. However, economists note that these positive expectations remain below the historical average for the survey.
