Kenya’s private sector shrank for a third consecutive month in May as surging costs squeezed businesses and pushed customers to pull back on spending, a closely watched survey showed on Thursday.
The Stanbic Bank Kenya Purchasing Managers’ Index dropped to 46.6 from 49.4 in April, marking the steepest deterioration in business conditions since July 2024. Any reading below 50.0 signals contraction; the further it falls, the harder the ground.
New orders declined at the fastest pace since mid-2025, with businesses across construction and services recording falls in both output and sales. Manufacturing stood apart as the only sub-sector to grow, bucking a broad retreat driven by demand weakness and a shortage of new work.
The cost pressure tells a sharper story. Inflation climbed to 6.7% year on year in May from 5.6% in April, its highest point in more than two years, fuelled largely by fuel price increases tied to the conflict in the Middle East. Those higher fuel and transportation costs fed directly into purchase prices, which rose at the fastest rate since November 2023. Businesses responded by passing costs on to customers, lifting their own selling prices at the quickest pace in two and a half years. All five sectors monitored by the survey recorded output price increases.
“Inflationary pressures have intensified, constraining demand conditions, with input prices, purchase costs and output prices driven up by higher fuel and transportation costs,” said Christopher Legilisho, economist at Stanbic Bank. He added that nationwide protests by transport sector workers disrupted business activity for a full week during the survey period, compounding the pressure on new orders and output.
The squeeze on demand also pushed firms to cut staff for the first time in 16 months, mostly by ending temporary contracts rather than shedding permanent roles. Purchasing activity fell for the first time in eight months as companies ran down existing stock rather than restocking.
Against that backdrop, Kenya’s statistics office projects the economy will grow 4.9% in 2026, up from 4.6% last year. Businesses, despite the difficult trading conditions, appear to share at least some of that guarded confidence. The survey’s future output index reached its strongest reading since February 2023, with firms pointing to planned investment, product expansion and a push to grow their online presence as reasons to look ahead.
“Despite subdued business momentum, firms remain optimistic about future conditions,” Legilisho noted.
The question is how long that optimism holds if fuel costs stay elevated and household budgets remain stretched.
