Kenya’s Private Sector Reaches Five-Year Peak as Economic Momentum Accelerates

Kenya’s private sector recorded its strongest performance in five years during November 2025, with the Stanbic Bank Kenya Purchasing Managers’ Index surging to 55.0, up from 52.5 in October. This marks the third consecutive month of expansion and represents the highest reading since October 2020, signaling renewed confidence in East Africa’s largest economy as it emerges from years of fiscal constraint and economic uncertainty.

The dramatic improvement in the PMI—a composite index measuring business activity, new orders, employment, supplier delivery times, and inventory levels—reflects broad-based gains across all sectors of Kenya’s economy. Readings above 50.0 indicate expansion in business activity, while those below signal contraction, making November’s figure particularly significant as evidence of accelerating economic momentum.

According to S&P Global’s official PMI report, business activity and new work both expanded at the sharpest rates in over five years, with firms experiencing improving customer sales helped by relatively soft inflationary pressures, successful new product launches, and effective marketing campaigns.

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Stronger Market Demand Drives Business Activity

The uplift in business activity was attributed primarily to stronger market demand, with survey panellists reporting steep increases in output. “The uplift in business activity was also one of the sharpest recorded in the survey history,” Stanbic Bank stated in comments accompanying the survey. “Survey panellists attributed the steep increase in output to stronger market demand.”

Christopher Legilisho, Economist at Standard Bank, offered insight into the underlying drivers of this performance: “The stimulus measures by the authorities over the last 12 months are now showing up in the real economy,” he stated, suggesting that government policy interventions implemented throughout 2024 and early 2025 are finally translating into tangible economic activity.

The sharp increase in new orders matched levels last seen in 2020, driven by improved customer purchasing power and successful new product launches. This improvement in demand has led to increased employment for the tenth consecutive month, although companies continue to highlight that material costs and higher taxation are straining their profit margins despite rising revenue.

Sectoral Improvements and Broad-Based Growth

The November PMI data revealed that all five monitored sectors reported increased sales compared to the previous month, representing a remarkable breadth of improvement across the economy. This universal expansion contrasts sharply with previous periods when growth was concentrated in specific sectors while others struggled.

Manufacturing, agriculture, services, construction, and wholesale trade all contributed to the overall expansion, with firms citing a combination of factors including effective marketing initiatives, increased customer referrals, and rising demand for innovative products. The broad-based nature of this growth suggests that the economic recovery is becoming more entrenched and sustainable rather than dependent on one or two key sectors.

Input costs have risen due to factors including fuel prices, taxation, and import costs, yet the strength of demand has allowed many businesses to maintain or expand operations despite these cost pressures. Supplier delivery times improved during November, with qualitative feedback indicating increased competition among vendors, which has helped to moderate some input cost increases.

The employment index showed continued growth, marking the tenth consecutive month of job creation in the private sector. This sustained employment growth is particularly significant given Kenya’s chronic challenges with unemployment and underemployment, suggesting that the current economic expansion is translating into tangible opportunities for workers.

Government and World Bank Optimistic Growth Projections

The strong PMI reading aligns with increasingly optimistic economic projections from both the Kenyan government and international financial institutions. Kenya’s finance ministry forecasts the economy to grow 5.3 percent in both 2025 and 2026, up from 4.7 percent in 2024, reflecting confidence in the sustainability of the current recovery.

The World Bank has been even more bullish, revising its 2025 growth estimate upward to 4.9 percent from its May forecast of 4.5 percent. This upward revision, announced on November 24, 2025, represents a significant boost to Kenya’s economic outlook and reflects improving conditions in key industries that had struggled under fiscal pressures in previous years.

According to the World Bank’s latest Kenya Economic Update, Kenya’s economy is projected to grow by an average of 4.9 percent between 2025 and 2027, with GDP having expanded by 4.9 percent in Q1-2025 and 5.0 percent in Q2-2025. This acceleration from 2024’s 4.7 percent growth rate has been supported by easing monetary policy, a rebound in the construction sector, and improved private sector credit growth.

Jorge Tudela Pye, World Bank Country Economist for Kenya, noted that Q2 2025 represented an upward surprise with faster than expected recovery in the construction sector, aided by government spending on housing and efforts to clear long-standing pending bills in the roads subsector.

Construction Sector Recovery Offsets Manufacturing Challenges

The construction sector’s notable rebound during the first half of 2025 has successfully offset a concurrent slowdown in the manufacturing sector, which continues to face challenges including high energy costs, supply chain disruptions, and subdued domestic demand. Construction activity, which had contracted significantly in 2024 due to government cash flow constraints and delayed payments to contractors, has resurged as the government resumed infrastructure spending and cleared accumulated arrears.

The construction sector’s resurgence has been driven by a combination of resumed government infrastructure spending, increased private sector real estate development, and the completion of stalled projects as contractors receive delayed payments. This recovery is particularly important given construction’s significant multiplier effects throughout the economy, creating demand for materials, equipment, transportation, and labor while generating substantial indirect employment.

The World Bank projects that construction is expected to contribute 6.29 percent to GDP by 2028, signaling rising infrastructure activity and investment confidence. This projection underscores the sector’s potential to serve as a sustained growth engine as Kenya implements its infrastructure development agenda.

Macroeconomic Stabilization Supports Private Sector Confidence

The strong private sector performance reflected in the November PMI data occurs against a backdrop of improving macroeconomic fundamentals that have helped restore business and consumer confidence. Several macroeconomic indicators continue to show strength, with inflation within target, a stable exchange rate, and foreign exchange reserves at record highs.

The Central Bank of Kenya has maintained an accommodative monetary stance, having reduced the benchmark interest rate to 10.0 percent in April 2025 to stimulate lending and economic activity. This monetary easing, combined with improved liquidity in the banking sector, has contributed to a rebound in private sector credit, which was growing 5 percent year-on-year by September 2025, supported by lower lending rates.

Inflation has remained relatively contained, easing to 4.5 percent in 2024 from 7.9 percent in 2023, enabling the central bank’s accommodative approach. The stable inflation environment has supported real wage growth in some sectors and improved household purchasing power, contributing to stronger consumer demand that has benefited businesses across multiple sectors.

The Kenyan shilling has stabilized against major currencies after a period of significant volatility, reducing import costs for businesses and easing pressure on companies that service foreign currency debt. Foreign exchange reserves have reached record levels, providing a buffer against external shocks and supporting exchange rate stability.

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Employment Growth and Labor Market Dynamics

The PMI’s employment sub-index showed continued expansion, marking the tenth consecutive month of job creation. This sustained employment growth represents a significant positive development for Kenya’s economy, which has historically struggled with creating sufficient formal sector jobs to absorb new labor market entrants.

According to the Kenya National Bureau of Statistics 2025 Economic Survey, Kenya created 782,300 new jobs in 2024, with total employment excluding small-scale agriculture increasing from 20 million in 2023 to 20.8 million in 2024. However, the distribution of these jobs highlights persistent structural challenges in Kenya’s labor market.

The informal sector accounted for 90 percent of new jobs created in 2024, generating 703,700 positions compared to 720,900 in 2023, while the formal sector created only 78,600 jobs, reflecting growth of just 2.4 percent. The informal sector now employs approximately 17.4 million people, representing 83.4 percent of total employment outside small-scale agriculture.

This heavy reliance on informal employment underscores the challenge of creating quality formal jobs despite overall economic growth. Formal employment remains at approximately 15 percent of total jobs, with many Kenyans working in micro, small, and medium enterprises that offer limited job security, benefits, or career progression opportunities.

The sectors providing the highest employment numbers in the private sector were manufacturing at 15.9 percent, agriculture, forestry and fishing at 14.1 percent, and wholesale and retail trade at 12.6 percent of total private sector employment. In the public sector, education dominates employment at 45.2 percent, followed by public administration and defense at 34.4 percent.

Real Wage Pressures Despite Nominal Growth

While employment has expanded and nominal wages have increased, real wage growth—wages adjusted for inflation—presents a more complex picture. The 2025 Economic Survey revealed that nominal average annual earnings per person increased from Sh832,700 in 2023 to Sh881,400 in 2024, representing a 5.8 percent increase.

However, real wages have fallen by more than 10 percent over the last decade, raising critical questions about whether economic growth is translating into better living standards for ordinary Kenyans. This disconnect between GDP growth and household welfare improvements represents a significant policy challenge.

Wambui Mbarire, CEO of the Retail Trade Association of Kenya, observed that “good macros should be translating into money in the consumer’s pocket. We note in the retail sector consumption has really gone down, we see smaller shopping baskets, we see focus only on must-buy items, which means food items will go, basic consumption items are moving, but anything that is considered a luxury good depending on the level of income is not moving at all.”

This consumption pattern suggests that despite improved macroeconomic indicators, many Kenyan households remain under financial pressure, prioritizing essential purchases while curtailing discretionary spending. The challenge for policymakers is ensuring that economic growth translates more effectively into household income gains that can support sustained consumption and improved living standards.

Fiscal Challenges Persist Despite Economic Momentum

While private sector indicators show robust improvement, Kenya’s fiscal position remains a significant source of vulnerability that could constrain future growth. The fiscal deficit for FY2024/25 widened to 5.9 percent of GDP, significantly above the original 4.3 percent target set in Supplementary Budget I, driven primarily by revenue shortfalls and increasingly rigid expenditure structures.

Kenya’s public debt reached 68.8 percent of GDP as of June 2025, with the country remaining at high risk of debt distress according to World Bank assessments. This high debt burden absorbs a vast portion of state revenue through interest payments and principal repayments, limiting fiscal space for productive investments in infrastructure, education, and healthcare.

The government has increased domestic borrowing, with a notable shift toward short-term treasury bills, which heightens rollover risks and could crowd out private sector credit if the trend continues. The World Bank cautioned that “without more ambitious reforms especially on the revenue side, debt and fiscal vulnerabilities are likely to persist,” according to Jorge Tudela Pye, Country Economist for Kenya.

Revenue collection has consistently underperformed targets, with the World Bank noting that revenue collections have missed targets by an average of 6.1 percent over the last three years. This chronic revenue underperformance, combined with rigid expenditure commitments dominated by salaries, debt service, and constitutional allocations to counties, leaves limited room for discretionary spending adjustments.

The government’s efforts to pursue fiscal consolidation continue to be undermined by weak revenue collection and high rigidity of expenditures, which restrict the ability to make significant budget adjustments. This fiscal constraint means that sustaining economic growth while managing debt obligations requires careful balancing and likely necessitates structural reforms to enhance revenue mobilization and improve expenditure efficiency.

International Trade Uncertainties and External Risks

Beyond domestic fiscal challenges, Kenya’s economic outlook faces significant external risks that could moderate growth momentum. The World Bank highlighted ongoing uncertainties in global and domestic trade as potential headwinds, alongside the ongoing fiscal consolidation process that is likely to moderate growth in the near term.

AGOA has been instrumental in supporting Kenya’s apparel manufacturing industry, which employs tens of thousands of workers and generates hundreds of millions of dollars in annual exports. The Kenya Private Sector Alliance (KEPSA) has cautioned that uncertainty surrounding AGOA’s renewal could threaten more than 66,000 direct jobs in the country’s apparel and manufacturing sectors.

The uncertainty surrounding AGOA creates investment hesitancy, as companies that have built supply chains and production facilities based on preferential U.S. market access face potential disruption if the program lapses or is replaced with less favorable terms. This trade policy uncertainty exemplifies the external risks that Kenya’s economy faces despite strong domestic momentum.

Additionally, global economic conditions including elevated interest rates in developed economies, geopolitical tensions affecting commodity prices and trade flows, and potential climate shocks all represent downside risks to Kenya’s growth trajectory. The World Bank noted that the economic outlook remains exposed to risks that could undermine growth, job creation, and macroeconomic stability.

Structural Reform Imperatives for Sustained Growth

The World Bank used its November 2025 Kenya Economic Update to press for deeper structural reforms to unlock long-term competitiveness and ensure that current growth momentum translates into sustained prosperity. The report, titled “From Barriers to Bridges: Procompetitive Reforms for Productivity and Jobs in Kenya,” identified the state’s heavy footprint in the commercial sector as a major barrier to efficiency.

The presence of more than 200 state-owned enterprises that enjoy undue advantages distorts market competition and reduces overall economic efficiency. These entities often benefit from preferential treatment in procurement, subsidized credit, regulatory forbearance, and other advantages that create an uneven playing field with private sector competitors.

The World Bank estimates that implementing procompetitive reforms could raise Kenya’s GDP growth by up to 1.35 percentage points and increase the growth of labor compensation by up to 2.0 percentage points, which is equivalent to 400,000 jobs annually at average wage levels. These potential gains underscore the importance of addressing structural constraints to competition and market efficiency.

Key reform priorities identified by the World Bank include reducing barriers to entry in key sectors, leveling the playing field between state-owned and private enterprises, improving the business regulatory environment, enhancing contract enforcement and property rights protection, and increasing transparency in public procurement. These reforms would help create a more dynamic private sector capable of generating quality formal jobs and sustaining higher productivity growth.

Implications for Future Economic Trajectory

The November 2025 PMI reading of 55.0 represents more than just a positive monthly data point; it signals a potential inflection point in Kenya’s economic trajectory after years of subdued growth and fiscal stress. The breadth of improvement across sectors, sustained employment growth, and alignment with improving macroeconomic fundamentals suggest that the recovery has firm foundations.

However, significant challenges remain. The dominance of informal employment, declining real wages for many workers, persistent fiscal vulnerabilities, and external trade uncertainties all pose risks to sustained inclusive growth. The test for Kenya’s policymakers will be translating current momentum into durable improvements in living standards and job quality while navigating fiscal constraints and implementing structural reforms that enhance long-term competitiveness.

The private sector’s strong performance, as captured in the PMI, demonstrates the productive capacity and resilience of Kenyan businesses when supported by stable macroeconomic conditions and improved access to credit. Sustaining this performance will require continued macroeconomic stability, progress on fiscal consolidation that doesn’t choke off growth, successful navigation of external risks including trade policy uncertainty, implementation of structural reforms that enhance competition and reduce the cost of doing business, and measures to ensure growth translates into better incomes and job quality for workers.

As African Leadership Magazine noted, the PMI surge confirms what many business owners have been sensing before official numbers caught up, but the question remains whether this positive momentum can be sustained and broadened to benefit more Kenyans across all income levels and regions.

Conclusion: Cautious Optimism Amid Persistent Challenges

Kenya’s achievement of a five-year high in the Purchasing Managers’ Index for November 2025 provides grounds for cautious optimism about the country’s economic prospects. The broad-based improvement across sectors, sustained employment growth, stronger market demand, and alignment with upwardly revised growth projections from both the government and World Bank all point to genuine economic momentum.

The stimulus measures implemented over the past year appear to be taking effect in the real economy, supporting business activity and gradually improving conditions for firms and workers. The construction sector’s recovery, stabilizing inflation, accommodative monetary policy, and improved credit growth are all contributing to a more favorable environment for private sector activity.

However, this positive trajectory faces significant headwinds. Fiscal pressures remain acute, with debt levels high and revenue collections consistently missing targets. Real wages have declined over the past decade, raising questions about how effectively economic growth is improving household welfare. The labor market continues to generate jobs primarily in the informal sector, leaving millions of Kenyans in precarious employment without adequate social protection.

External risks, particularly surrounding trade policy and global economic conditions, could quickly derail progress if they materialize adversely. The World Bank’s emphasis on structural reforms reflects the reality that sustaining growth and converting it into broad-based prosperity requires going beyond macroeconomic stabilization to address deeper constraints to competition, productivity, and job quality.

As Kenya navigates these challenges, the strong PMI reading provides evidence that the private sector has the capacity to drive growth when conditions are favorable. The task ahead involves maintaining macroeconomic stability, addressing fiscal vulnerabilities through enhanced revenue mobilization and expenditure efficiency, implementing structural reforms that level the playing field and reduce barriers to competition, and ensuring that growth translates into tangible improvements in employment quality and household incomes.

The November 2025 PMI of 55.0 marks an encouraging milestone in Kenya’s economic recovery, but converting this momentum into sustained, inclusive prosperity will require sustained commitment to reform and careful policy management in the face of persistent domestic and external challenges.

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By: Montel Kamau

Serrari Financial Analyst

4th December, 2025