Kenya's private sector shrinks sharply in May as costs hit 18-month highs

Stanbic Bank Kenya PMI dropped to 46.6 in May from 49.4 in April. Any reading below 50 signals contraction, marking the steepest decline in private sector health since July 2024.

Input cost inflation hit its fastest pace since November 2023, driven by higher fuel and transportation costs, forcing businesses to pass price increases to customers while new orders fell at the fastest rate in nearly a year.

Services and construction were hardest hit; employment contracted for the first time in 2025 as firms cut temporary staff, though manufacturing showed modest growth and business sentiment for the rest of the year remained cautiously optimistic

This PMI reading lands at a difficult moment for Kenyan businesses already navigating a weakened shilling recovery and elevated cost of credit. The CBK's benchmark rate has been high as it battles inflation.

The fuel and transport cost spike is particularly punishing in Kenya, where logistics costs ripple quickly through supply chains for sectors like agri-tech, retail, and construction.

For Nairobi founders, tighter customer budgets mean longer sales cycles and pressure on unit economics, especially for B2B SaaS and consumer-facing startups that rely on discretionary spending.

The one bright spot: firms are still planning digital investment and product diversification, suggesting the startup ecosystem may see continued demand for productivity and cost-reduction tools.