Kenya Cuts 2026 Economic Growth Forecast to 5%

The government has revised Kenya’s economic growth forecast for 2026 downward to 5 per cent from an earlier projection of 5.3 per cent, citing the impact of the ongoing Middle East conflict on global energy markets and the resulting increase in fuel prices.

Presenting the 2026/27 Budget in Parliament, Treasury Cabinet Secretary John Mbadi said rising energy costs linked to tensions involving Iran, Israel and the United States are expected to slow economic activity, particularly in fuel-intensive sectors such as transport, manufacturing and logistics.

The Treasury had initially projected the economy to expand by 5.3 per cent in 2026, supported by strong agricultural output, a recovery in the services sector and continued implementation of reforms under the government’s Bottom-Up Economic Transformation Agenda (BETA).

However, the revised outlook reflects growing concerns over global economic uncertainty and the effects of elevated oil prices on inflation, production costs and consumer spending.

“Global developments, particularly the conflict in the Middle East and its impact on energy prices, have necessitated a review of our growth projections,” Mbadi told lawmakers during the budget presentation.

Despite the downgrade, the Treasury remains optimistic about the country’s medium-term prospects, projecting economic growth to recover to 5.2 per cent in 2027 as global conditions stabilize and domestic reforms continue to take effect.

The revised forecast comes amid mounting inflationary pressures. Kenya’s annual inflation rate rose to 6.7 per cent in May from 5.6 per cent in April, driven largely by increases in food, transport and energy costs.

Economists have attributed the rise in inflation to disruptions in global oil supply chains following heightened tensions in the Middle East and concerns over shipping through the Strait of Hormuz, one of the world’s most critical oil transit routes.

The impact has already been felt locally through higher fuel prices. The cost of a litre of petrol rose from Sh178.28 in April to Sh206.97 before increasing further to Sh214.25 in the latest fuel price review.

The surge in fuel costs has pushed up transportation, manufacturing and distribution expenses, increasing the cost of doing business and placing additional pressure on households already grappling with higher living costs.

Analysts warn that prolonged high energy prices could dampen consumer demand, reduce corporate profitability and slow economic growth if supply disruptions persist.

Even so, the government maintains that Kenya’s economic fundamentals remain resilient, supported by ongoing investments in infrastructure, agriculture, digital transformation and industrial development.