Economy grows on mining and construction rebound, households still feel the squeeze
By Chemtai Kirui
GDP (Gross Domestic Product) growth accelerated in the third quarter, but high food, fuel and housing costs continue to strain family budgets.
Nairobi, Jan. 8 — The economy expanded by 4.9% in the third quarter of 2025, driven by a rebound in construction and mining and steady growth in agriculture and services, even as many households continued to grapple with high living costs, official data shows.
The Kenya National Bureau of Statistics (KNBS) said on Tuesday that economic performance in the July–September period rose from 4.2% a year earlier, pointing to resilience despite erratic weather, tight global financial conditions and domestic fiscal pressures.
Figures released by the agency showed that construction recorded one of the strongest turnarounds, growing 6.7% after contracting in the same quarter of 2024, while mining and quarrying surged 16.6%, reflecting improved extraction activity.
Agriculture, forestry and fishing expanded 3.2%, supported by mixed but generally stable production.
Economists say this means the economy in 2025 produced more goods and services than it did in 2024. If sustained, they add, the faster growth would point to improving business activity, gradual job creation and stronger government revenue, which could ease fiscal pressure over time.
At the macro level, the pickup signals resilience in the face of drought, tight global financing and budget constraints, but it does not automatically translate into lower living costs or immediate relief for households, especially as food, fuel and housing expenses remain elevated.
Private sector indicators reinforce this contrast, showing business conditions improving faster than household wellbeing.
The Stanbic Bank Kenya Purchasing Managers’ Index (PMI) pointed to strengthening activity toward the end of the year, rising to 53.7 in December 2025 and remaining above the 50 mark for a third consecutive month, a level economists interpret as sustained expansion rather than a one-off rebound.
Crossing and staying above the 50 threshold signals growth in private sector activity, with firms reporting stronger demand reflected in higher sales and increased purchasing of inputs, suggesting that customers were buying more goods and services and that businesses were scaling up operations in anticipation that activity would remain firm.
This pickup was accompanied by improved hiring momentum, with employment growth reaching its fastest pace since late 2019, a comparative measure showing firms were adding workers more quickly than in recent years, although this does not mean unemployment is low or that hiring is broad-based across all sectors.
Business confidence heading into 2026 was described as robust, with most firms expecting supportive conditions in the coming months, indicating that companies are planning ahead rather than preparing for contraction.
Economists caution, however, that confidence reflects expectations rather than guaranteed outcomes, and that operating costs remain elevated due to higher taxes, fuel prices and raw material costs, meaning optimism exists despite continued pressure on margins, not because those pressures have eased.
For consumers, however, the experience has been markedly different.
Food and energy prices have continued to absorb a growing share of household income, particularly in urban areas and climate-stressed regions, analysts say.
Rent, transport and utility costs have also remained high, outpacing wage growth for many workers and muting the benefits of broader economic expansion.
“The economy is growing, but it is not yet growth that most households can feel,” said one Nairobi-based economist, noting that sector-specific recoveries tend to benefit businesses and capital-intensive industries first, before filtering through to jobs and incomes.
These vulnerabilities are already visible in the external accounts. Trade data shows the deficit widened sharply in the third quarter as imports rose faster than exports, increasing demand for foreign exchange and adding pressure on the current account, a trend analysts say could complicate the outlook if it persists.
Higher import bills, particularly for machinery, fuel and intermediate goods, have contributed to price pressures across the economy.
While capital goods imports may support future production capacity, analysts warn that sustained imbalances could weaken the shilling and further raise the cost of imported essentials, with knock-on effects for consumers.
The government has defended its fiscal consolidation efforts, aimed at containing debt while maintaining investment in infrastructure and productive sectors.
Officials argue that stabilizing public finances is necessary to support long-term growth and macroeconomic stability.
The cautiously optimistic tone is also reflected among international lenders. The World Bank has recently revised its outlook for Kenya, pointing to improved performance in construction and other productive sectors, while cautioning that climate shocks, global uncertainty and domestic cost pressures continue to pose significant risks.
Economists say the challenge for policymakers now is ensuring that growth becomes more inclusive.
“Sustained expansion will depend not just on headline GDP numbers, but on whether jobs, incomes and purchasing power improve,” said a financial analyst tracking the country’s economy.
Supporting small and medium-sized enterprises, boosting exports and managing food and energy costs will be critical to easing pressure on households, the analyst added.
Looking ahead, attention will focus on how external conditions, including global demand, commodity prices and weather patterns, shape the economy’s path this year.
While business sentiment remains upbeat and key sectors continue to recover, the gap between economic growth and household welfare highlights the challenge of translating macro-level gains into everyday relief for households.
