Kenya’s private sector returned to expansion in July 2026, with the Stanbic Bank Kenya Purchasing Managers’ Index rising to 51.3 from 50.0 in June. The reading was the strongest in six months and marked the first clear improvement in operating conditions since February.
The recovery was driven by stronger new orders, increased hiring and improved business expectations. However, production remained under pressure as high fuel and transport costs, constrained liquidity, raw-material shortages and longer delivery times continued to limit firms’ ability to convert new demand into higher output.
Key Overview
- Headline PMI: Increased to 51.3 in July from 50.0 in June.
- Six-month high: The strongest reading since January 2026.
- Demand: New orders rose at their fastest pace since January.
- Employment: Hiring increased at the quickest rate recorded in 2026.
- Output: Production declined for a fifth consecutive month.
- Inflation: Consumer inflation rose slightly to 6.5% in July.
- Monetary policy: The Central Bank Rate remained at 8.75%.
Stronger Orders Pull the Private Sector Back Into Growth
The July business survey showed that Kenya’s private sector expanded after several months of weakness. A PMI reading above 50 indicates improving business conditions, while a figure below that threshold signals contraction.
The index had fallen from 50.4 in February to 47.7 in March, 49.4 in April and 46.6 in May before stabilising at 50.0 in June. July’s rise to 51.3 therefore represented a notable shift in momentum, although the level still pointed to moderate rather than rapid growth.
New business recorded its strongest increase since January. Firms attributed the improvement to customer referrals, more aggressive marketing, expanded product ranges and new service offerings. The increase in workloads encouraged businesses to recruit more workers, including temporary staff, producing the fastest employment growth of the year.
Business confidence also remained elevated as firms anticipated stronger sales, entry into new markets, innovation and supply-chain improvements. The detailed PMI findings indicated that optimism was at its highest level since February 2023.
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Output Still Lags Behind Improving Demand
Despite stronger orders, production declined for a fifth consecutive month. This divergence shows that the return to growth was not yet broad-based across all measures of private-sector activity.
Companies cited weak cash flow, input shortages and supplier delays as constraints on output. Some importers experienced longer waiting periods for materials, while elevated transport and energy costs discouraged suppliers from making smaller or less profitable deliveries.
About 37% of surveyed firms reported higher operating costs. Fuel, freight and raw materials were among the main sources of pressure, forcing companies to choose between absorbing expenses and passing them to customers.
Standard Bank economist Christopher Legilisho said cost pressures and logistics bottlenecks were still limiting activity, even as demand began to recover. The survey therefore signals an improving business environment, but not a complete recovery in corporate margins or productive capacity.
Stable Currency and Lower Rates Offer Support
Kenya’s macroeconomic conditions are more supportive than during the currency volatility experienced in early 2024. The shilling was trading at approximately KSh129.42 against the US dollar on August 5, reducing uncertainty for companies purchasing imports or servicing foreign-currency obligations.
The Monetary Policy Committee retained the Central Bank Rate at 8.75% during its June meeting. The rate has fallen substantially from 13% in August 2024, providing a more accommodative backdrop for credit, investment and business activity.
However, lower policy rates do not automatically translate into affordable financing for all companies. The weighted average commercial-bank lending rate remained above 14% in June, while many small and medium-sized enterprises continued to report limited access to working capital.
Foreign-exchange reserves also remained above the statutory minimum. They stood at approximately $13.85 billion, equivalent to 5.9 months of import cover, as of July 23.
Inflation and Global Risks Could Slow the Recovery
Kenya’s annual inflation rate increased to 6.5% in July from 6.4% in June. Higher fuel and transport expenses could continue to raise costs for manufacturers, retailers and service providers while weakening household purchasing power.
The private sector is also exposed to global risks, particularly energy-market volatility and disruptions to shipping and supply chains. Kenya imports most of its petroleum requirements, meaning international price increases can quickly affect transport, production and consumer prices.
The July PMI provides evidence that demand and business confidence are improving. However, sustained recovery will depend on whether firms can increase production, access affordable financing and rebuild margins without sharply raising prices.
For now, the private sector has moved back into expansion, but the combination of rising orders and falling output shows that the recovery remains fragile and uneven.
Sources: Reuters / The Star / Central Bank of Kenya
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