Economist: Unemployment and inflation tell the real story of Kenya's economy

Kenya's economy is facing growing pressure from weak household spending despite continued GDP growth, with economists warning that declining purchasing power is becoming a bigger threat to businesses, manufacturers and job creation than headline growth figures suggest.

Speaking during a Radio Generation interview on Tuesday, Mentoria Economics Chief Economist Ken Gichinga said indicators such as unemployment and inflation provide a clearer picture of the country's economic health than GDP growth alone.

His remarks come after the latest Economic Survey showed the economy expanded by 4.6 per cent in 2025, compared to 4.7 per cent the previous year. However, Gichinga said those figures do not fully reflect the financial strain many households continue to face.

According to the economist, it is possible for an economy to register growth without creating enough jobs, leaving many people unable to benefit from the expansion.

"GDP growth is actually not the best measure for how an economy is performing. What you want to look at is unemployment and inflation. You can actually have jobless growth where you have growth in sectors that are not necessarily creating jobs. One of the most common questions we often get is why GDP is growing at 4% or 5%, but people are not feeling it in their pockets. It means that growth is not strictly tied to job creation."

Gichinga said weak consumer demand remains the biggest challenge facing the economy, largely because many households have less money available for spending.

He pointed to inflation trends as evidence of the problem, noting that while headline inflation recently stood at 6.7 per cent, core inflation has remained much lower, showing that consumer spending remains subdued.

"Core inflation speaks to the things people experience daily, and it has been around 3%. At one point it was about 2%. That speaks to very weak consumer demand and very weak purchasing power. If that continues for too long, an economy can slide into deflation, where prices keep falling because consumers postpone spending in anticipation of even lower prices."

He warned that prolonged weak demand can have wider consequences for economic activity, citing Japan's experience with deflation as an example of how delayed spending can slow growth by reducing transactions and discouraging investment.

Gichinga also said manufacturers are paying close attention to consumer purchasing power when making investment decisions, arguing that demand is often a bigger concern than political uncertainty.

"The number one thing a manufacturer looks at is how strong the market is. What is the point of setting up a factory if people cannot afford the products? Beyond political uncertainty, manufacturers are asking whether consumers have enough purchasing power. Weak consumer demand is the biggest challenge affecting manufacturing today."

Apart from weak demand, he identified high electricity costs as another burden affecting both businesses and households.

"When I studied my own electricity bill, I realised that about two-thirds was actual consumption, while nearly one-third consisted of taxes, levies and other charges. If we reduced many of those additional costs, Kenya would become much more competitive."

The economist further linked the decline in household spending power to increased deductions from workers' salaries over the past three years, including contributions towards affordable housing, the Social Health Authority (SHA) and the National Social Security Fund (NSSF).

"The deductions on payslips over the last three years have significantly eroded purchasing power. Policymakers need to think carefully about how to raise the purchasing power of Kenyans because that is what drives demand. Almost every product is shrinking in size because businesses are responding to weaker consumer spending."

Gichinga said boosting the purchasing power of households would help increase demand across the economy, support local manufacturers and create more jobs for Kenyans.