Kenya’s economy is still growing, but the latest numbers from the Economic Survey 2026 suggest that the nature of that growth is changing.
Beneath the headline GDP figures lies a more complex story: growth is slowing, investment remains relatively weak, informality continues to dominate employment, and the economy remains heavily dependent on imports and household consumption.
Real GDP growth slowed from 7.6 percent in 2021 to 4.6 percent in 2025. While this still represents positive expansion, the economy is no longer experiencing the strong post-pandemic rebound seen earlier in the recovery cycle.
Estimates of the output gap also suggest that the economy is operating slightly below potential, implying that productive capacity is not being fully utilised.
This matters because slower economic momentum directly affects jobs, incomes, business activity, and revenue performance.
The most important story in the KNBS data is that Kenya’s economy is increasingly being driven by consumption rather than investment.
Private consumption consistently accounts for about 72–74 percent of GDP, making household spending the dominant engine of growth.
Government consumption contributes another 13–14 percent. By contrast, gross fixed capital formation (GFCF)—which captures investment in machinery, infrastructure, buildings, factories, and productive assets—remains relatively modest at about 18–20 percent of GDP.
This is a critical signal. Economies that sustain rapid industrialisation and productivity growth typically maintain significantly higher investment rates.
Kenya’s relatively low level of fixed capital formation suggests that while consumption remains resilient, investment in future productive capacity is not expanding at the same pace.
In practical terms, the economy appears to be growing more through spending than through large-scale expansion of productive sectors.
The composition of growth reinforces this pattern. Private consumption contributed between 3.5 and 5.4 percentage points to annual GDP growth during 2022–2025, making it by far the largest growth driver. Investment contributed only about one percentage point annually, while imports consistently reduced growth, reflecting Kenya’s continued dependence on imported goods, fuel, machinery, and intermediate inputs.
At the same time, the labour market remains overwhelmingly informal. Informal employment rose to 18.1 million workers in 2025 and now accounts for approximately 84 percent of total employment. Nearly 60 percent of informal employment is concentrated in wholesale and retail trade, hotels, and restaurants.
This means that although the economy continues to generate jobs, much of the expansion is occurring in low-productivity and weakly formalised sectors.
This has major implications for incomes, productivity, and economic formalisation. A highly informal economy limits the growth of formal wage employment, reduces pension coverage, weakens financial inclusion, and lowers the visibility of economic transactions.
It also means that a relatively narrow group of formal sectors carries a disproportionate share of economic and fiscal activity. Sector data illustrates this imbalance clearly. Financial services contribute disproportionately to economic activity relative to their size, while ICT and manufacturing also demonstrate high formal-sector productivity.
By contrast, large sectors such as agriculture, transport, and parts of real estate remain comparatively weakly formalised relative to their contribution to GDP. This suggests that large parts of the economy continue to operate with lower levels of traceability, documentation, and integration into the formal system.
Financial conditions also help explain why many businesses still perceive the economy as difficult despite continued growth. Lending rates remained elevated at 14.8 percent in 2025, even after monetary policy easing began.
High borrowing costs continue to constrain private sector expansion, particularly in construction, manufacturing, trade, and household credit markets.
Private sector credit growth slowed sharply in 2024 before recovering modestly in 2025, indicating that financing conditions remain relatively tight. Externally, Kenya remains structurally import-dependent.
Imports reached Sh3.06 trillion in 2025 compared to exports of Sh1.69 trillion, leaving a large trade deficit and continued pressure on the current account.
Export growth has slowed sharply, while import growth also moderated significantly in 2025, partly reflecting weaker domestic demand and tighter financial conditions.
Cyrus Mutuku is a Macroeconomist and a data scientist at the Kenya Revenue Authority. Email: [email protected]
