The Central Bank of Kenya (CBK) headquarters in Nairobi.
Kenyan firms have downgraded their 2026 economic growth expectations amid concerns of rising inflation on the back of spillover effects from the Middle East conflict that is pushing up fuel prices and disrupting global supply chains.
Findings from the Central Bank of Kenya (CBK) Market Perceptions Survey show that businesses now expect inflation to edge higher in the near term, largely driven by elevated oil prices linked to the US–Israel conflict with Iran.
The survey, conducted last month, targeted views from entities that included 37 commercial banks, 14 microfinance institutions, and 349 non-bank private firms that included 96 hotels.
The CBK reported that the survey achieved an overall response rate of 64 per cent, with responses received from 36 commercial banks, 13 microfinance banks, and 205 non-bank private sector firms.
“Respondents expect a gradual increase in inflation over the next three months, largely driven by escalating US–Israeli conflict with Iran, which is disrupting supply chains and exerting upward pressure on oil prices,” CBK said in the findings.
“Respondents have revised their economic growth expectations for 2026 downward, largely reflecting concerns over the adverse effects of the ongoing conflict in the Middle East on both the global and domestic economy.”
Global lenders
The downgrade in business sentiment mirrors recent revisions by global lenders, including the International Monetary Fund (IMF) and the World Bank, which have both trimmed Kenya’s growth outlook on similar concerns around inflation and external shocks.
At the core of these concerns is the sharp increase in fuel prices, which has filtered through the economy following disruptions in global oil supply chains tied to the conflict, raising transport and production costs.
Higher energy costs are expected to feed into broader inflation, eroding household purchasing power and forcing consumers to cut back on spending, a trend that could dampen business revenues and hiring plans.
Kenya National Bureau of Statistics (KNBS) data showed that Kenya’s annual inflation rose from 4.3 per cent in February to 4.4per cent in March, driven largely by increases in food prices, which remain the most volatile and influential component of the consumer basket.
Higher fuel price shocks
This outlook is also consistent with recent projections by the apex bank, which expects inflation to rise above its preferred midpoint in the short term, driven by higher fuel price shocks and their knock-on effects.
Kenya’s economy has in recent months shown signs of resilience, supported by easing inflation, a relatively stable currency, and a gradual recovery in key sectors such as services and agriculture.
The renewed surge in global energy prices, however, threatens to reverse some of these gains, particularly if the conflict persists and continues to disrupt vital trade and supply chains.
The private sector’s current cautious outlook also reflects structural vulnerabilities within the economy, including heavy reliance on imported fuel and exposure to external demand conditions.
The survey findings come at a time when the government is under pressure to sustain economic growth while managing rising cost-of-living concerns among households.
Higher inflation could further strain consumers, many of whom have already experienced declining real wages in recent years, limiting their ability to absorb additional price increases.
In the business landscape, the combination of rising costs and subdued demand presents a difficult operating environment, potentially leading to cost-cutting measures, including slower hiring and reduced investment.
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