Kenya’s private sector activity contracted for a third consecutive month in May as rising inflation and higher business costs weakened consumer demand and reduced new orders, according to a closely watched survey released on Thursday.
The Stanbic Bank Kenya Purchasing Managers’ Index (PMI), a measure of business conditions in the private sector, fell to 46.6 in May from 49.4 in April, marking the sharpest deterioration in operating conditions since July 2024.
A PMI reading above 50 indicates expansion in business activity, while a figure below that threshold signals contraction.
The latest survey pointed to broad-based weakness across much of the economy, with businesses reporting lower customer demand, rising operating expenses and a slowdown in new work.
“When explaining the latest drop, panellists remarked on demand weakness, inflationary pressures and shortages of new work,” Stanbic Bank said in commentary accompanying the survey.
More Read
The lender noted that manufacturing was the only sector to record growth during the month, bucking the wider trend seen across the economy.
The survey comes as East Africa’s largest economy grapples with renewed inflationary pressures that have increased costs for businesses and households alike.
Official data showed Kenya’s annual inflation rate accelerated to 6.7 percent in May from 5.6 percent in April, reaching its highest level in more than two years. Economists have linked the rise largely to higher fuel prices, which have filtered through to transportation and other costs across the economy.
More Read
Higher fuel and transport costs have increased the price of raw materials and goods, placing additional pressure on businesses already facing subdued demand.
Christopher Legilisho, an economist at Stanbic Bank, said inflation was becoming a growing concern for firms and consumers.
“Inflationary pressures have intensified, constraining demand conditions, with input prices, purchase costs and output prices driven up by higher fuel and transportation costs,” Legilisho said.
According to the survey, companies reported a decline in new orders as customers reduced spending in response to higher prices and tighter household budgets. Some firms also indicated that economic uncertainty had led clients to delay purchasing decisions.
The downturn in demand contributed to lower business activity and weaker output levels across most sectors, the survey found.
Despite the challenging environment, businesses continued to show resilience. Firms increased purchasing activity at a modest pace and remained hopeful that economic conditions would improve over the coming year.
More Read
The survey found that business confidence stayed positive, with companies expecting stronger demand, improved investment and greater economic stability in the months ahead.
“Still, despite subdued business momentum, firms remain optimistic about future conditions,” Legilisho said.
Kenya’s economy has shown signs of slowing in recent years amid elevated borrowing costs, weather-related disruptions and pressure on household incomes. However, government officials remain confident that growth will strengthen in 2026.
The Kenya National Bureau of Statistics said in late April that it expects the economy to expand by 4.9 percent this year, up from 4.6 percent growth recorded in 2025.
The projected improvement is expected to be supported by continued investment in infrastructure, growth in services and a recovery in key sectors such as agriculture and manufacturing.
Nevertheless, analysts warn that persistent inflation and rising global energy costs could pose risks to the outlook if they continue to undermine consumer spending and business investment.
For now, the latest PMI survey suggests that many Kenyan businesses remain under pressure, with higher costs and weaker demand continuing to weigh on economic activity as the country navigates a challenging inflationary environment.
