Companies across Kenya have opted to trim their growth projections for the coming months citing negative impact triggered by the Middle East crisis that has left oil markets reeling amid supply chain disruptions. 

According to the Central Bank's market perception survey undertaken in March, captains of industry cited a divergence between Kenya's improving domestic environment amid rising risks sparked by geopolitical tensions following US-Israeli war that broke out on 28th February.

Survey states that whereas investors are experiencing easing credit costs, and a stable shilling against the US dollar, a steep jump in pump prices couples with looming supply chain disruptions across sectors remain the biggest threat to economic stability.

“These developments are also likely to put pressure on employment and incomes, adversely affect exports and remittances, and weaken domestic demand,” CBK's Market Perception Survey covering March states.

Respondents said they are projecting a "gradual increase" in inflation in the country in the three months to June, solely due to higher fuel prices driven by the US-Israel conflict with Iran. 

Supply shocks

However, a majority of the respondents project that Kenya's inflation will remain within the Central Bank's target bracket.

“Eighty-two percent of respondents indicated that higher fuel prices, arising from geopolitical tensions, commodity price cycles, and supply shocks, pose a significant medium-term inflation risk, particularly for a fuel import-dependent country like Kenya,” CBK report notes in part.

While respondents expect a hit on the economy on account of rise in fuel prices, this impact will likely be offset by expected stability in food prices due to favourable weather conditions and subsidised fertiliser programme. Already, fuel prices in the country have shot up sharply to retail at prices shy of KSh200 per litre in Nairobi despite cut in VAT to 8 percent from a higher 16 percent.

However, the survey notes that the conflict could still drive up costs for oil, gas, fertilisers, shipping and insurance, undermining those gains to a good extend.

During the year, respondents said a jump in agricultural sector performance, continued investment in energy infrastructure, housing and digital connectivity is poised to anchor growth. 

Fuel prices to impact production

Nevertheless, three-quarters of respondents expressed concern that rising global fuel prices would raise local transport and production costs, “thereby slowing the pace of economic activity.”

Over the medium term (2027-2031), respondents still expect growth to average between 4.0 and 6.0 percent, but flagged high debt service obligations and revenue shortfalls as key risks.

Against this gloomy external backdrop, the survey shows that Kenya's financial services sector remains stable. 

Players across industry expect higher loan update this year compared to 2025 owing to the CBK's move to further cut borrowing charges. Last week, the CBK left the benchmark lending rate unchanged at 8.5 percent citing the need to cushion the economy from oil price shocks.

“Respondents expect private sector credit growth to be supported by the reduced cost of credit… thereby increasing disposable income and boosting overall demand for credit,” the CBK said.

Credit demand from SMEs, small traders and micro-enterprises is expected to be moderate to high over April and May, particularly for working capital and inventory building ahead of the school holiday period. 

Delay in loan decisions

However, banks remain cautious, with geopolitical developments prompting firms to delay large credit decisions.

A further pointer to continued economic growth is the respondent's forecast that firms are going to employ more workers this year compared to 2025. 

According to the report, banks remain the most optimistic on hiring as institutions gear up to maintain growth momentum while also attracting fresh talent.

However, some sectors are less optimistic, attributable to cost-cutting pressures and investments in digital transformation and emergence of artificial intelligence (AI) as reasons to streamline operations rather than grow employee numbers.

In order to sustain growth amid fuel price shocks, respondents have urged the government to consider administering temporary tax cuts, simplify the tax system, and ease the tac load on employees to boost disposable income.

On the financial side, they called for a review of microfinance bank regulatory requirements to unlock credit for MSMEs, accelerated settlement of pending government bills, and maintaining a predictable monetary policy environment to sustain low interest rates.

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