Kenya’s economic outlook for 2026 has been revised downward after the International Monetary Fund (IMF) reduced its growth projection, citing rising costs of living, pressure on energy and imports, and global uncertainty linked to the ongoing conflict in the Middle East that continues to disrupt trade and income flows.
The IMF now expects the economy to expand by 4.5 per cent in 2026, down from an earlier forecast of 4.9 per cent. Even with the revision, Kenya’s growth remains above the global average, which has also been lowered to 3.1 per cent from 3.3 per cent.
The downgrade comes at a time when signs of a slowdown in job creation are already visible. Recent official data shows that the country recorded the lowest number of new jobs since the 2020 coronavirus period, raising concern that weaker growth could worsen employment conditions.
Inflation is also projected to rise faster than earlier expected. The IMF now sees consumer prices closing the year at 5.9 per cent, up from 5.2 per cent. The increase is largely driven by higher fuel and fertiliser costs, which are pushing up production expenses across key sectors of the economy.
As prices go up, household budgets are expected to come under pressure, forcing families to reduce spending. That drop in demand could slow business activity and make firms more cautious in hiring, with some likely to scale back jobs if costs continue to rise.
The IMF has linked part of the global slowdown to instability in the Middle East, saying it is affecting commodity markets, inflation expectations, and financial conditions worldwide.
“Once again, the global economy is threatened with being thrown off course-this time by the outbreak of war in the Middle East at the end of February 2026,” the IMF said in its world economic outlook report published earlier this week.
“Over the past year, headwinds from higher trade barriers and elevated uncertainty have been offset by tailwinds from technology-related investment, accommodative financial conditions, including a weaker US dollar and fiscal and monetary policy support.
The Middle East conflict presents a significant counterforce to these tailwinds through its impact on commodity markets, inflation expectations and financial conditions.”
A similar assessment has been made by the World Bank, which lowered Kenya’s 2026 growth forecast to 4.4 per cent from 4.9 per cent. It pointed to rising external pressures and structural challenges despite earlier gains in stabilising inflation and currencies in many economies.
The World Bank also warned that remittance inflows are at risk, which could affect Kenya’s economy given its reliance on money sent from citizens working abroad. It estimated that the country could lose up to $40 million (Sh5.2 billion) monthly if the disruptions continue.
At the same time, Fitch Ratings revised its outlook, cutting Kenya’s growth projection to five per cent from 5.2 per cent, citing inflation pressures linked to global tensions.
Together, the revised forecasts point to a tougher economic environment for Kenya, driven mainly by external shocks, rising costs, and weakening demand.