Kenya’s economy is expected to strengthen in 2026, with growth projected at 5.3%, up from 4.9% in 2025, according to the Diamond Trust Bank (DTB) Economic Outlook 2026.
The report highlights resilient domestic demand, easing financial conditions, and targeted government spending as key drivers of recovery.
“The outlook for 2026 is broadly positive with improving momentum across sectors. Even then, execution of public projects, fiscal discipline and management of risks around government borrowing, climate shocks and global uncertainty, will be crucial to sustaining the momentum,” DTB Research noted.
Global Backdrop: Slower Growth, Easier Monetary Policy
Global GDP growth is forecast to moderate to 2.9% in 2026, constrained by tariffs, fiscal pressures, and geopolitical risks. However, central banks are expected to continue easing, with the US Federal Reserve projected to cut rates by 50 basis points, supporting global liquidity.
The report points to a weaker US dollar and subdued energy prices, oil is expected to average below US$60 per barrel as factors cushioning emerging markets.
East Africa: Regional Outperformer
East Africa remains a bright spot, with growth projected at 5.5–6.0% in 2026, outpacing both Sub‑Saharan Africa (4.0%) and global averages.
Uganda and Tanzania are expected to outperform, buoyed by oil and gold exports, while Kenya’s recovery will be steady but slower due to fiscal constraints.
Inflation across the region is expected to remain below the medium‑term target of 5.0%, averaging 4.2% in 2026, supported by stable energy prices and improved food security.
East Africa 2026 Growth Outlook: Kenya, Uganda, Tanzania, Rwanda
Kenya: Broad‑Based Recovery
Kenya’s growth will be broad‑based, led by agriculture, services, and construction. The report highlights:
- Agriculture: Strong performance continues to anchor recovery.
- Construction: Infrastructure and housing investments expected to drive growth, with government spending on roads set to exceed KShs 500 billion in FY2026/27.
- Manufacturing: Modest gains projected at 2.4%, supported by stronger domestic demand and spillovers from construction.
- Energy: Electricity consumption rose 10% in 2025 and is expected to remain in double digits as demand grows.
Fiscal Pressures Remain
Despite the positive outlook, fiscal risks loom large. Public debt remains elevated at 68% of GDP, with debt service consuming nearly 40% of expenditure. The fiscal deficit is projected to widen to 5.3% of GDP in FY2026/27, driven by higher spending.
Recent debt restructuring and sovereign credit rating upgrades by Fitch and Moody’s have eased short‑term distress risks, but DTB warns that sustained reforms are necessary.
“Constrained fiscal space, climate‑related shocks and potential crowding out of investments if sovereign financing needs intensify remain key risks to the outlook,” the report cautions.
Fiscal Deficit Widens to 5.3% of GDP in Kenya’s Draft 2026 Budget Policy Statement
Kenya enters 2026 with cautious optimism. Growth is expected to accelerate, supported by resilient demand and easing financial conditions. However, fiscal discipline, effective execution of public projects, and management of external risks will be critical to sustaining momentum.
