The fallout from the ongoing conflict in the Middle East is beginning to weigh on Kenya’s private sector, with fresh survey data pointing to a slowdown in demand alongside persistent domestic inflationary pressures.
The Stanbic Bank Kenya Purchasing Managers’ Index slipped to 47.7 in March from 50.4 in February, marking the first contraction in business activity in seven months.
Businesses attributed the slowdown in part to spillover effects from the Middle East crisis, including disrupted supply chains, higher shipping costs, and more cautious consumer behaviour.
On the global stage, the conflict has driven up oil prices and unsettled key trade routes, feeding inflation and dampening growth across several economies.
For Kenya, which relies heavily on imported fuel, the impact has been swift. Rising transport costs, more expensive inputs, and heightened uncertainty are increasingly shaping business decisions.
Christopher Legilisho noted that the weaker PMI reading reflects both demand-side strain, with reduced consumer spending power, and supply-side disruptions linked to the conflict. Output and new orders declined across most sectors, suggesting firms anticipate continued constraints stemming from geopolitical tensions.
Despite the dip in activity, employment held relatively firm, supported largely by hiring within the agricultural sector. Backlogs eased, and business confidence for the coming year softened. Sluggish demand also led to slower growth in purchasing activity and inventories, although supplier delivery times improved.
Rising costs remain a sticking point. Firms reported sharper increases in input and purchase prices, driven by taxes, fuel, and higher shipping expenses tied to the conflict. Yet, with demand already under pressure, many businesses have been reluctant to pass these costs on to consumers, resulting in squeezed margins.
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Data from the Kenya National Bureau of Statistics shows headline inflation holding at 4.4% in March, suggesting relative stability on the surface. However, underlying pressures persist. Food prices, influenced by weather patterns and supply inefficiencies, continue to bite, while electricity costs are quietly pushing up production and distribution expenses.
According to the survey, input costs rose at their fastest pace in more than two years, largely due to fuel, taxation, and logistics. With limited room to raise selling prices in a weak demand environment, businesses are increasingly absorbing the shock, tightening margins across the private sector.
