Kenya’s private sector returned to growth in July 2026, marking a turning point after four months of stagnation or decline. The expansion was underpinned by the strongest increase in new orders since January, as businesses successfully attracted customers through referrals and marketing.
Positive momentum was nonetheless tempered by persistent operational challenges, including a contraction in output, supply chain disruptions, and elevated cost pressures. Despite this, Kenyan firms demonstrated greater confidence in their prospects, with employment expanding at the fastest pace so far this year, while overall business optimism surged to its highest since February 2023.
The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI® ). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.
For the first time since February, the Kenya PMI registered in expansion territory, increasing from 50.0 in June to 51.3 in July. The reading signalled a moderate improvement in the private sector’s performance after several months of challenging conditions.
What was the demand and output for July 2026?
The survey revealed a notable divergence between demand and output. New work inflows expanded solidly and for the second consecutive month following a three-month decline, with growth accelerating to its quickest pace since January. Greater customer receipts were often attributed to client referrals, marketing efforts and new products and services.
However, output contracted for the fifth straight month, albeit at the slowest rate in this sequence. This mismatch partly reflected ongoing challenges with elevated inflationary pressures and their knock-on effects on liquidity, which prevented firms from fully capitalising on stronger demand conditions.
The labour market showed encouraging signs in July, with private sector employment rising solidly. This was done predominantly through short-term hiring to address mounting workloads. Backlogs of work accumulated for the second successive month, albeit at a softer pace than June. The buildup of unfulfilled orders was attributed both to the output-demand mismatch and delays in receiving imported components.
Overall input cost inflation remained elevated in July, cooling only marginally from June’s 31-month peak. Approximately 37% of companies reported higher operating expenses, driven primarily by surging transportation costs, elevated fuel prices and material shortages stemming from the Middle East conflict. However, selling price inflation moderated from June’s record high to its slowest pace since April, as only 15% of firms raised their charges, reflecting concerns about maintaining profit margins in a price-sensitive market.
How did Kenyan businesses perform in July 2026?
Meanwhile, Kenyan businesses saw a decline in supplier performance for the second straight month, with delivery times lengthening slightly due to input shortages and rising costs. This prompted mixed inventory and purchasing strategies. Some firms increased stocks to buffer against shortages and meet stronger demand, while others reduced holdings to preserve capital and cut costs.
Future expectations brightened in July, with overall sentiment rising to its highest in just under three-and-a-half years. Positivity towards future output was supported by uplifted demand projections, business diversification plans, innovation, and supply chain optimisation efforts.
