Kenya’s private sector contracted in March for the first time in seven months, as squeezed household budgets, higher fuel costs and disruptions linked to the Middle East war pulled the Stanbic Bank Kenya Purchasing Managers’ Index down to 47.7 from 50.4 in February.
The reading, compiled by S&P Global from survey responses collected between 12 and 27 March 2026, marked the fourth consecutive monthly decline and the first drop below the 50.0 threshold that separates growth from contraction since August 2025.
“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,” said Christopher Legilisho, Economist at Standard Bank. Output and new orders declined in most sectors, implying that businesses expect to remain constrained by the disruptions from geopolitical tensions.
Orders fall, output follows
New orders fell for the first time in six months, with the pace of contraction the most pronounced since July 2025. The reversal was linked to subdued customer spending, financial constraints and external shocks, with many firms reporting a drop in sales despite continued promotional activity. Services firms recorded the steepest decline across the five sectors monitored by the survey.
Businesses responded by pulling back production. Output declined sharply and for the first time in seven months, driven by weak demand, reduced purchasing power, high input costs, and logistical disruptions stemming from geopolitical tensions. Downturns appeared across most sectors, with wholesale and retail the only category to record higher activity.
Costs surge, but firms absorb the pressure
Input cost inflation accelerated to its highest level since December 2024, with the Middle East war’s effect on fuel and transport identified as the main driver. Purchase prices rose at their fastest pace in just over two years, with agriculture firms bearing the greatest increase, followed by wholesale and retail companies.
Despite the cost surge, most businesses chose not to pass the burden on to customers. Output prices rose at their slowest pace in seven months, as weaker demand, tight cash flow and competitive pressure restrained firms from raising selling charges. In manufacturing and construction, average selling prices fell outright.
Legilisho noted the bind this created: “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 price increases were subdued as firms declined to pass on costs to consumers in an already weak demand environment.”
Employment holds, but only just
Employment edged up for the fourteenth consecutive month but at its softest pace since October 2025. Agriculture drove job creation, while construction and services firms scaled back or halted hiring amid weaker demand. Backlogs of work fell at their steepest rate in almost six years, as lighter order books freed up capacity across all sectors surveyed.
Firms also trimmed inventories after seven months of growth, choosing to run leaner stocks to manage cash constraints and avoid accumulating goods that were unlikely to move quickly.
Businesses stay cautious but committed
Looking ahead, business sentiment held broadly steady compared to February. Just over a fifth of respondents forecast growth in the coming twelve months, with expectations anchored in plans to open new branches, invest in digital and online marketing, broaden product and service offerings, and build capacity. Manufacturers expressed the most confidence; services firms the least.
Employment conditions held up as firms in the agricultural sector drove hiring, though there was reduced optimism about output over the next 12 months. The broader picture points to a private sector that remains under pressure but has not abandoned its longer term growth plans, even as geopolitical shocks and stretched household finances continue to test its resilience.
