Paul Arithi 
- Solid declines in output and new orders
- Demand and input costs impacted by war in the Middle East
- Business optimism stays strong
The slowdown in private sector activity was broadly demand-led, with many firms pointing to constrained customer spending, reduced cash circulation and tighter household budgets;
Solid declines in output and new orders Demand and input costs impacted by war in the Middle East Business optimism stays strong Kenya’s private sector showed clear signs of cooling in March, as businesses reported a solid decline in both output and new orders following six months of expansion.
The Middle East war also resulted in more cautious spending patterns among some firms, as well as logistics constraints to customer deliveries and higher prices for fuel and transport.
Overall cost pressures accelerated in March, but the subdued demand environment meant that the impact on
selling charges was minimal.
The headline figure derived from the survey is the Purchasing Managers’ IndexTM (PMI®).Readings above 50.0
signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
At 47.7 in March, down from 50.4 in February, the Kenya PMI indicated a deterioration in operating conditions for
the first time since August 2025.This also marked the fourth consecutive month where the index has fallen since
the previous survey period.
The March PMI findings highlighted the impact of constrained consumer budgets and external shocks from the Middle
East war on Kenyan demand.
Although some firms continued to record growth, often attributing improved performance to marketing efforts, customer referrals, product and service innovation, and expanded digital sales channels, a larger share reported that consumers and clients were financially stretched, leading to reduced order volumes.
Some businesses commented on disruptions to international transport due to the war, which also dampened sales.
This resulted in the first decline in total order books for seven months in March,with the pace of decline solid overall. Businesses curtailed output in direct response, again for the first time in seven months.
Kenyan companies also reported elevated cost pressures at the end of the first quarter.Panellists frequently cited
higher taxes, rising fuel and transport costs and increased shipping expenses as factors pushing up purchasing prices,
which rose at the sharpest rate in just over two years.
Nevertheless, output prices rose at a slower pace, as many firms indicated that they were unable to fully pass higher costs on to customers amid softer demand and heightened competition.
Kenyan companies broadly chose to hold leaner inventories in March, in order to avoid dead stocks, manage cash constraints, and respond to slower order pipelines.
Employment trends also weakened, with firms reporting only a slight increase in staffing that was the softest recorded since October 2025.
This partly reflected a fall in outstanding business that was the most pronounced for almost six years.
Looking ahead, the survey data pointed to a degree of resilience in Kenyan business sentiment.
The year-ahead outlook for total activity was broadly unchanged since February, with just over a fifth of respondents forecasting growth.
Expectations were underpinned by plans to expand through new branches, increased advertising and online marketing, broader product and service offerings, and investment in capacity and human capital.
Christopher Legilisho, Economist at Standard Bank commented:
“A weaker Stanbic Kenya PMI in March reflects demand-side concerns – softer spending power constraining demand – and supply-side concerns about the war in the Middle East.
Output and new orders declined in most sectors, implying that businesses expect to be constrained by the disruptions from geopolitical tensions.
“Despite lower output and new orders, employment conditions held up as firms in the agrarian sector drove hiring.
Backlogs declined, while there was reduced optimism about output over the next 12 months.
Slowing demand meant subdued increases in quantities purchased and inventories, though delivery times improved.
“Higher input prices and purchase prices were linked to concerns about taxes and the impact of the war in the Middle East on shipping costs.
Output prices increases were subdued as firms declined to pass on costs to consumers in an
already weak demand environment.”
Output
Output declined sharply in March and for the first time in seven months.Survey members signalled that this was driven by weak demand, reduced purchasing power, high input costs, and disruptions from geopolitical tensions and logistics. Downturns were seen in most sectors, with wholesale & retail the only category to record higher activity.
New orders
New orders at Kenyan companies also fell, breaking a six-month period of growth. The rate of contraction was solid and the most marked since July 2025.
This reversal in momentum was linked to subdued customer demand, financial constraints, and external shocks, with many firms noting a drop in sales despite continued promotional activities.
Services firms observed the greatest decline in new orders out of the five monitored sectors.
Confidence levels were little-changed from February, with around 21% of monitored firms providing positive forecasts for output over the coming 12 months in March.
Expectations were largely underlined by business statements about their plans to expand, invest and diversify their products. Manufacturers were the most upbeat about future activity, with service providers the least.
Output
Output declined sharply in March and for the first time in seven months. Survey members signalled that this was driven by weak demand, reduced purchasing power, high input costs, and disruptions from geopolitical tensions and logistics. Downturns were seen in most sectors, with wholesale & retail the only category to record higher activity.
New orders
New orders at Kenyan companies also fell, breaking a six-month period of growth. The rate of contraction was solid and the most marked since July 2025.
This reversal in momentum was linked to subdued customer demand, financial constraints, and external shocks, with many firms noting a drop in sales despite continued promotional activities.Services firms observed the greatest decline
in new orders out of the five monitored sectors.
Business expectations;
Confidence levels were little-changed from February, with around 21% of monitored firms providing positive forecasts for output over the coming 12 months in March.
Expectations were largely underlined by business statements about their plans to expand, invest and diversify their products.Manufacturers were the most upbeat about future activity, with service providers the least.
Employment and capacity
Employment
Businesses across Kenya reported only a marginal increase in employment levels in March. The respective seasonally adjusted index dropped to a five-month low, but was in expansion territory for the fourteenth month running.
Sector data highlighted that strong job creation in agriculture was a key driver of higher employment, whilst in other segments including construction and services, firms reported scaling down or halting expansion of their headcounts amid weaker demand.
Backlogs of work
A decline in sales across the private sector led to reduced workloads at the end of the first quarter, allowing companies to lower backlogs.
Not only did the decline in work- in-hand mark a reversal from February, when workloads were more stable, but the rate of depletion was also solid and the most pronounced in just under six years.
Contractions were seen in all sectors covered by the survey.
Purchasing and inventories
Quantity of purchases
An increase in input purchases across the private sector economy was observed for the sixth consecutive month in March, but the rate of growth slowed. Indeed, the latest upturn was modest and the weakest in the aforementioned period.
While anecdotal reports pointed to stock replenishment efforts to support sales and new projects, this was curbed somewhat by the weaker demand environment.
Tighter cash flow was also a limit on growth.
Suppliers’ delivery times
Vendor schedules improved in March amid further evidence of strong competition, as most survey comments attributed shorter lead times to efforts from suppliers to outpace rivals.
Moreover, some panellists noted that a softening of demand pressure supported quicker deliveries. Overall vendor
performance improved to a solid degree that was the strongest seen for three months.
Stocks of purchases
After expanding for seven months in a row, input stocks decreased slightly at Kenyan companies in March.Panellists mainly cited lower demand as a reason to pare back inventories.
The decrease was mostly driven by the services and agricultural parts of the private sector economy.
Prices;
Input prices
March data signalled an acceleration in input cost inflation faced by Kenyan companies. After adjusting for seasonal variation, the Input Prices Index rose to its highest level since December 2024 and pointed to a sharp uptick in overall cost burdens.
Survey evidence suggests that the pick-up was mainly due to the impact of the Middle East war on fuel and transport prices.
Purchase prices
Kenyan firms saw purchase prices rise to the strongest degree in just over two years during March.
The uplift was sharp and moved closer to the survey’s long-run average. As well as ongoing pressure from tax burdens,
businesses widely commented on higher fuel costs and shipping fees.
Agriculture firms faced the greatest rise in purchasing costs, followed by wholesale & retail companies.
Staff costs
Employment costs continued to exhibit a relatively stable trend in the Kenyan private sector in March. Moreover, the seasonally adjusted Staff Costs Index posted only fractionally above the 50.0 neutral mark and
was the lowest in four months.
Output prices
Despite a sharper increase in costs, output prices rose at the softest pace for seven months in March. Most firms held their prices from the prior month, while just 4% of respondents noted an uplift.
Survey comments indicated that weaker demand, tight cash flow conditions and competitive pressures restrained the pass-through of higher costs to customers.
In manufacturing and construction, average selling charges fell outright.
