Kenya’s private sector returned to contraction in March, ending a period of growth, as businesses grappled with falling demand and spillover effects from tensions in the Middle East.
Latest data from Stanbic Bank Kenya shows that the Purchasing Managers’ Index (PMI) dropped to 47.7 in March, down from 50.4 recorded in February. The figure marks the fourth straight monthly decline and signals worsening business conditions, as any score below 50 indicates contraction.
The downturn, captured in a survey conducted between March 12 and 27, reflects a challenging economic climate. Firms cited reduced cash flow in the market, tighter household spending, and rising costs of fuel and transportation as key pressures weighing on operations.
Businesses also reported supply chain disruptions, with delivery delays becoming more frequent. These challenges have been partly linked to ongoing instability in the Middle East, which continues to affect global trade routes and costs.
For the first time in seven months, companies recorded a drop in new orders, forcing many to cut back on production. Order books have thinned, prompting firms to adjust output in response to weaker demand.
At the same time, input costs have surged at their fastest rate in over two years. Higher taxes, increased fuel prices, and rising shipping costs have all contributed to the spike. However, stiff competition and reduced consumer demand have made it difficult for businesses to transfer these costs to customers.
In a bid to stay afloat, companies are tightening their belts by reducing stock levels and managing inventories more cautiously. Hiring has also slowed, with job creation hitting its weakest pace since October 2025.
Backlogs of work have declined sharply, marking the fastest drop in nearly six years, an indication that firms are clearing pending tasks without enough new business coming in.
Despite the bleak outlook, there are cautious signs of optimism. A little over 20 percent of surveyed firms expect business conditions to improve over the next year. This optimism is tied to planned expansions, increased advertising, stronger digital marketing efforts, product diversification, and investment in workforce and production capacity.
