Broke Kenyans cut spending as Iran war drives up costs

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Kenya’s private sector activity shrank in March for the first time since August last year, a closely watched survey showed on Tuesday, as households already struggling with high living costs cut back spending and the war in the Middle East drove up prices.

The Stanbic Bank Kenya Purchasing Managers’ Index (PMI), a key barometer of business health where readings above 50.0 signal growth and below 50.0 contraction, fell to 47.7 from 50.4 in February.

The decline ended six consecutive months of expansion and marked the fourth straight monthly drop in the index.

The PMI is compiled by S&P Global from a survey of around 400 private sector companies, covering agriculture, manufacturing, construction, wholesale, retail, and services.

It is widely regarded as a reliable early indicator of economic performance for its ability to capture month-to-month changes in output, new orders, employment, and prices.

“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,” said Christopher Legilisho, economist at Standard Bank.

He added: “Output and new orders declined in most sectors, implying that businesses expect to be constrained by the disruptions from geopolitical tensions.”

The survey found that many firms pointed to “constrained customer spending, reduced cash circulation and tighter household budgets” as the main drag on activity.

Some businesses also reported disruptions to international transport due to the Middle East conflict, which dampened sales.

New orders fell solidly for the first time in seven months, and output was curtailed in direct response.

Despite a sharp acceleration in input cost inflation, purchase prices rose at the fastest rate in just over two years; companies were largely unable to pass the burden onto customers. Firms cited higher taxes, rising fuel and transport costs, and increased shipping expenses linked to the war.

“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,” Legilisho said.

Yet output prices rose at the softest pace in seven months, with only 4 per cent of respondents raising their charges. “Output prices increases were subdued as firms declined to pass on costs to consumers in an already weak demand environment,” the economist noted.

The report added that “many firms indicated that they were unable to fully pass higher costs on to customers amid softer demand and heightened competition.”

In manufacturing and construction, average selling charges actually fell. That left businesses trapped.

They raise prices and lose customers who can barely afford basic goods or absorb the higher costs and watch margins evaporate. With household purchasing power already subdued by high inflation and elevated taxes, most chose the latter.

Employment continued to grow, but only marginally, the weakest pace since October 2025. The agrarian sector drove hiring, while construction and services scaled back. Companies also reduced inventory holdings to avoid dead stock and manage cash constraints.

Looking ahead, business optimism remained but weakened. Just over a fifth of respondents expect growth over the next 12 months, supported by plans for new branches, marketing, and product innovation. However, the year-ahead outlook was broadly unchanged from February, and Legilisho noted: “reduced optimism about output over the next 12 months.”

The survey data were collected between March 12 and 27, 2026.