Private sector players expect modest economic expansion in 2026, but the Middle East conflict and rising fuel costs cloud outlook.
Central Bank July survey reveals hiring to remain flat as firms turn to automation and digitisation.

Kenya’s private sector has expressed sustained optimism about the country’s economic prospects over the next 12 months, even as rising fuel prices, geopolitical tensions and high operating costs continue to pose significant headwinds, according to the Central Bank of Kenya’s July 2026 Market Perceptions Survey.

The survey, which captured views from 36 commercial banks, 13 microfinance banks and 200 non-bank private sector firms, found that respondents expect economic growth to improve modestly in 2026 compared with 2025, supported by lower borrowing costs, recovery in tourism and construction, and stable macroeconomic conditions.

Kenyan businesses expectations on inflation

Respondents revised their inflation expectations upwards, with about 90 per cent identifying higher fuel and energy prices as the primary driver of price pressures over the next three months. The survey noted that rising fuel costs have increased transport, electricity, production and distribution expenses, exerting upward pressure on domestic prices.

Geopolitical tensions in the Middle East were cited as contributing to higher freight and logistics costs, further feeding into domestic inflation. However, respondents still expect overall inflation to remain within the central bank’s target band, supported by government fuel subsidy measures and expectations of declining global energy costs should tensions de-escalate.

Private sector credit rebounds

Bank respondents anticipate moderate growth in private sector credit in 2026 compared with 2025, driven primarily by lower lending rates following monetary policy easing. About 52 per cent of respondents cited lower borrowing costs as the primary driver of credit growth.

The survey found that average commercial bank lending rates declined to 14.3 per cent in July, from 17.2 per cent in November 2024. This has stimulated demand for credit and supported private sector activity, particularly in manufacturing, construction and hospitality sectors.

Digital financial innovation and customer-level risk-based pricing were also identified as factors supporting credit growth, alongside targeted MSME financing strategies.

Mixed employment outlook

Hiring expectations for 2026 remain broadly stable compared with 2025, as firms increasingly adopt digitisation, automation and resource optimisation, reducing the need for large-scale recruitment.

The survey indicates that recruitment will primarily target staff replacement, conversion of contract roles to permanent positions, and acquisition of specialised expertise in business development and digital technologies.

Banking and financial services recorded the strongest hiring intentions, with 36 per cent of respondents indicating they would “definitely” hire in 2026. Agriculture also showed resilient hiring prospects, supported by favourable weather and government fertiliser subsidy programmes.

However, transport and construction recorded no respondents indicating definite hiring plans, reflecting continued pressure from high fuel costs and weak aggregate demand.

Geopolitical risks weigh on outlook

The survey identified geopolitical tensions, particularly the conflict in the Middle East, as the primary external threat to economic activity. Respondents noted that the conflict had weighed on economic activity through higher fuel and energy prices, supply chain disruptions, and weaker investor sentiment.

The World Bank has projected Kenya’s economy will grow by an average of 4.9 per cent between 2025 and 2027, but fiscal pressures are intensifying, with the deficit widening to 5.9 per cent of GDP. The country remains at high risk of debt distress, underscoring the urgency of credible fiscal consolidation.

Hotel sector shows recovery

Hotel forward bookings for July to October 2026 improved compared with the same period in the previous year, reflecting increased seasonal demand and a pick-up in business tourism. Respondents expect further growth in meetings, conferences and corporate events, particularly in Nairobi, which has experienced a surge in international gatherings.

Respondents proposed measures to enhance the business environment, including predictable and simplified regulatory frameworks, improved access to affordable credit for MSMEs, and timely settlement of government pending bills.

The survey also highlighted the need to avoid excessive government domestic borrowing to create space for private sector credit growth, and to shift government spending toward development expenditure with higher economic multiplier effects.