Kenya’s private sector activity contracted for the second month in a row in April on costly fuel following the Iran war that hit consumer demand, forcing firms to tap more casual workers to contain wage bills.
The latest Stanbic Bank Kenya Purchasing Managers’ Index (PMI) shows the index rose marginally to 49.4 last month up from 47.7 in March, staying below the 50-point threshold that signals growth.
The reading points to a continued deterioration in operating conditions, even as the pace of decline eased compared to March. The March figure was the first time since August 2025 that the index went below 50.
Firms increased hiring, the survey says, but increasingly favoured short-term and flexible hiring arrangements over permanent employment to manage expenses and preserve cash flows.
Kenya like many other African countries is heavily reliant on energy imports from the Gulf region, engulfed in war. The Iran conflict has left it scrambling to stave off shortages of essential commodities like fuel, and the war's ripple effects are expected to spur inflationary pressures that could dampen Kenya's growth prospects.
“Businesses in Kenya suffered a further decline in operating conditions in April, as increasing fuel prices lifted average cost burdens and dampened customer demand,” noted Stanbic in the report.
“Monitored companies often reported hiring casual workers to support current projects and growth plans.”
In mid-April, Kenya raised its retail fuel prices by as much as 24.2 percent amid a spike in crude prices and a squeeze in petroleum supplies caused by the Middle East conflict, triggering a surge in costs across sectors.
Inflation rose to 5.6 percent year-on-year in April from 4.4 percent a month earlier, data from the statistics office showed.
The survey said drops in business activity were most pronounced in wholesale and retail, agriculture and service sector companies.
"Concerns about rising costs, tied to higher transport costs and the ability to secure supplies, especially from the Middle East and Asia, weighed on output and new orders," Christopher Legilisho, economist at Stanbic Bank, said.
Kenya’s statistics office said in late April it forecasts the economy will expand 4.9 percent in 2026, but it said Sub-Saharan Africa remained highly vulnerable to shocks triggered by the US-Israeli war with Iran.
The economy grew 4.6 percent last year, little changed from 2024's 4.7 percent growth and below the Treasury’s estimate of 5.0 percent for 2025.
Last month, businesses reported a drop in output and new orders, marking the second consecutive month of contraction as households and firms cut back spending in response to rising prices and broader economic uncertainty.
Stanbic reckons that the slowdown in private sector activity has largely been driven by demand-side pressures, with companies citing reduced customer spending power amid persistent inflation and tighter financial conditions across the economy.
“The overall rate of cost inflation soared to its highest level since December 2023, with around 18 percent of survey respondents reporting a month-on-month rise in expenses,” said the lender.
These cost pressures have compounded an already fragile demand environment, leaving businesses caught between rising input costs and limited ability to pass those costs on to consumers.
In response, the report notes, companies raised their selling prices at the fastest pace in nearly two-and-a-half years, marking a shift from the pricing restraint seen in March when firms had absorbed costs to remain competitive.
The ability to fully transfer these costs to customers, however, remained constrained by weak demand, signalling continued pressure on profit margins in the near term.
Sector data shows that the contraction was most pronounced in wholesale and retail trade, agriculture as well as in services, reflecting the sensitivity of the segments to shifts in consumer spending and cost dynamics. Business confidence continued to soften for the third consecutive month, reflecting ongoing concerns about the economic outlook and cost environment.
According to the survey, only about 18 percent of surveyed firms expect output to increase over the next 12 months, with executives looking to development plans, diversification and marketing spending as drivers of optimism.
