Private sector contracts in March as demand weakens, costs rise
Stanbic PMI falls to 47.7 from 50.4 as firms report lower orders and higher fuel and transport costs
By Chemtai Kirui | Nairobi
Private sector activity contracted in March, ending a six-month expansion streak, as businesses reported weaker demand and rising operating costs.
The Stanbic Bank Kenya Purchasing Managers’ Index (PMI) fell to 47.7 in March from 50.4 in February. A reading below 50 indicates a contraction in business activity. Stanbic said the decline was driven by reduced customer spending, lower cash circulation and fewer new orders, with only wholesale and retail recording growth during the month. Firms also reported a decline in backlogs of work, with the rate of reduction the fastest since 2017, excluding the pandemic period.
Inflation edged up to 4.4 per cent in March from 4.3 per cent in February, driven in part by higher electricity costs, according to the Kenya National Bureau of Statistics. The cost of 200 kilowatt-hours rose from Sh5,564 to Sh5,689 over the period, while month-on-month inflation increased to 0.5 per cent from 0.2 per cent.
Data from the Energy and Petroleum Regulatory Authority shows underlying fuel costs are rising. While pump prices remained unchanged in the latest review, the landed cost of diesel increased by 8.46 per cent and kerosene by 6.79 per cent between February and March.
The pricing cycle reflects cargoes delivered between February 10 and March 9, meaning current pump prices do not yet reflect the full impact of recent supply disruptions linked to tensions in the Middle East.
According to the Central Bank of Kenya, the increase in inflation was driven by food and energy prices. Non-core inflation rose to 10.8 per cent from 10.1 per cent, while core inflation, which excludes volatile items, remained at 2.1 per cent.
The Central Bank said the shilling traded at KSh 129.99 to the dollar on April 2. Foreign exchange reserves stood at KSh 1.78 trillion ($13.66 billion), equivalent to 5.8 months of import cover.
Industry stakeholders said supply constraints have emerged under the government-to-government fuel import arrangement, citing disruptions linked to the Middle East that have affected sourcing and distribution.
The contraction comes despite the Central Bank of Kenya lowering its benchmark lending rate for the tenth consecutive time in February to 8.75 per cent to support private-sector credit and economic activity. The bank said private-sector credit growth had improved, while lending rates had eased.
Fitch Ratings has revised the 2026 growth forecast to 5.0 per cent from 5.2 per cent, citing risks linked to higher fuel costs and inflation. The National Treasury projects growth of 5.3 per cent in 2026.
The March PMI data showed declines in output and new orders across most sectors, alongside higher input costs, particularly for transport and energy.
