The International Monetary Fund (IMF) has cut Kenya’s growth forecast for 2026 to 4.5 percent from 4.9 percent, citing rising energy costs, risks to remittances and export disruptions linked to the war in the Middle East.
Kenya’s revised outlook comes as the IMF also lowered its global growth forecast to 3.1 percent from 3.3 percent, reflecting mounting geopolitical and economic headwinds.
The downgrade is likely to weigh on job creation, especially as the latest official data shows the economy added the fewest jobs since the 2020 coronavirus pandemic.
The IMF also expects inflation to accelerate faster than previously projected, with consumer prices now seen closing the year at 5.9 percent, up from an earlier estimate of 5.2 percent.
The projected slowdown is expected to stem from reduced productivity as firms grapple with rising input costs, including fuel and fertiliser.
Higher inflation is also set to erode household purchasing power, forcing consumers to cut spending and weakening demand, which could limit hiring and increase the risk of layoffs.
The Washington DC-based lender warned that the ongoing US-Israel war with Iran could derail the global recovery.
“Once again, the global economy is threatened with being thrown off course – this time by the outbreak of war in the Middle East at the end of February 2026,” the IMF said in its World Economic Outlook report published earlier this week.
“Over the past year, headwinds from higher trade barriers and elevated uncertainty have been offset by tailwinds from technology-related investment, accommodative financial conditions, including a weaker US dollar, and fiscal and monetary policy support. The Middle East conflict presents a significant counterforce to these tailwinds through its impact on commodity markets, inflation expectations and financial conditions.”
More downgrades
The World Bank has also lowered Kenya’s growth projection for 2026 to 4.4 percent from 4.9 percent, citing mounting external pressures and structural constraints linked to the conflict.
It noted that while macroeconomic stability has improved in many countries, supported by easing inflation, stronger currencies and better fiscal management, these gains are now being tested by external shocks, particularly from the escalating US-Israel conflict with Iran.
“The conflict has heightened risks to remittance flows, threatening an essential income source for countries such as Kenya, which could face monthly losses of up to $40 million (Sh5.2 billion),” the World Bank said.
Global ratings agency Fitch has also trimmed Kenya’s 2026 growth forecast to five percent from 5.2 percent, citing inflationary pressures linked to the conflict.
In 2024, the economy created 782,300 jobs, down from 848,100 a year earlier, according to official data.
About 90 percent of these jobs were in the informal sector, highlighting the challenges facing formal businesses in creating quality employment for graduates entering the labour market.
The economy generated 75,000 formal jobs last year, compared with 122,900 previously – another low since the Covid-19 downturn, when 185,800 jobs were lost in 2020.
Policy outlook
The Central Bank of Kenya (CBK) has also cut its 2026 growth forecast to 5.3 percent from 5.5 percent, reflecting emerging risks from the Middle East conflict.
“Higher energy prices attributed to the war in Iran are expected to affect the performance of key sectors such as manufacturing, transport and storage, accommodation and food services, and wholesale and retail trade,” CBK Governor Kamau Thugge said.
“Disruptions in supply chains are also expected to affect exports and imports of goods and services.”
However, CBK expects the manufacturing sector to grow by three percent in 2026, up from a projected 2.2 percent in 2025.
Growth in transport and storage, as well as accommodation and food services, is expected to slow to 4.3 percent from 4.9 percent and to eight percent from 10.4 percent, respectively.
The agriculture sector is expected to provide some support, aided by favourable weather conditions, while services are likely to remain resilient on the back of continued digitisation and the expansion of e-commerce.
