By The Weekly Vision Reporter
The World Bank has lowered Kenya’s economic growth forecast for 2026 to 4.3 per cent, citing the impact of rising global uncertainty and higher energy costs linked to the conflict in the Middle East. In its latest Kenya Economic Update, released on 9 July 2026, the lender revised its forecast down from the 4.9 per cent projected in November 2025. It now expects growth to edge up only slightly to 4.4 per cent in 2027 before gradually returning to around 5 per cent over the medium term.
The revised outlook is notably more cautious than the National Treasury’s projections. Treasury Cabinet Secretary John Mbadi has forecast economic growth of 5.0 per cent in 2026 and 5.2 per cent in 2027, after lowering the Government’s earlier estimate of 5.3 per cent.
The difference between the World Bank’s and the Government’s projections is significant because economic growth assumptions influence tax revenue expectations, public borrowing plans and private sector investment decisions. The World Bank attributed the downgrade primarily to the economic consequences of the United States-Israel-Iran conflict, which has disrupted global energy markets and shipping routes.
As a net importer of petroleum products, Kenya is particularly exposed to higher oil prices. According to the Bank, rising energy costs are expected to increase production expenses, slow private investment, weaken household purchasing power and moderate remittance inflows.
Fuel prices reached record levels earlier this year after the Energy and Petroleum Regulatory Authority increased pump prices. The Government subsequently reduced Value Added Tax on fuel from 16 per cent to 8 per cent to cushion consumers.
Despite the tax relief, transport costs remained significantly higher than a year earlier, while food inflation stayed above 8 per cent for much of the second quarter, adding pressure on household budgets. The World Bank warned that a prolonged conflict could reverse recent gains in poverty reduction.
Lead Economist for Kenya Tom Bundervoet said the external shock could increase Kenya’s poverty rate by between two and 4.5 percentage points, potentially pushing between one million and 2.4 million additional people below the international poverty line by the end of the year.
Manufacturing and transport are expected to bear the brunt of rising fuel and freight costs, which increase the cost of imported inputs and squeeze business margins. While some firms may initially absorb the additional costs, sustained increases are likely to be passed on to consumers, adding further inflationary pressure.
Agriculture, however, is expected to remain relatively resilient, supported by favourable weather conditions and improved harvests. The services sector presents a mixed outlook. Consumer-facing businesses may experience weaker demand as households tighten spending, while financial and business services could benefit from continued recovery in private sector lending.
The Central Bank of Kenya (CBK) has maintained the Central Bank Rate at 8.75 per cent since February, pausing what had been its longest monetary easing cycle.
At its meeting on 9 June, the Monetary Policy Committee opted to leave the rate unchanged, saying the current stance remained appropriate to contain inflation while supporting exchange rate stability. Inflation rose to 6.7 per cent in May, largely driven by higher energy prices, but remained within the CBK’s target range of 2.5 to 7.5 per cent.
The World Bank’s growth projections assume continued monetary easing, a stable exchange rate and stronger private sector lending. However, further escalation of geopolitical tensions and higher oil prices could limit the CBK’s ability to reduce interest rates in the coming months.
The Bank expects slower economic growth to translate into more cautious hiring, particularly in manufacturing and the informal sector, which employ a large share of Kenya’s workforce.
Businesses typically postpone expansion plans when operating costs are volatile, and uncertainty increases, making weaker private investment a key concern for employment growth. The World Bank also identified Kenya’s August 2027 General Election as a potential downside risk. Election periods have historically been associated with delayed private investment, while increased public spending could complicate efforts to reduce the fiscal deficit and stabilise public debt.
Despite the downgrade, the World Bank stressed that Kenya’s economic fundamentals remain comparatively resilient. It cited a stable shilling, lower interest rates than in recent years and improving credit conditions as factors that should support economic activity once external pressures ease.
The lender also recently approved a US$750 million budget support loan together with a US$500 million sustainability-linked financing facility aimed at helping Kenya reduce its reliance on expensive domestic borrowing while advancing fiscal and structural reforms.
For businesses, the revised forecast points to a more challenging operating environment during the remainder of 2026. Companies should prepare for continued volatility in fuel, transport and import costs while closely monitoring future CBK interest rate decisions.
Businesses dependent on discretionary consumer spending may face softer demand, whereas firms operating within agricultural value chains or benefiting from stronger private sector credit conditions could prove more resilient.
For investors, the divergence between the World Bank’s projections and the Government’s forecasts reflects the uncertainty surrounding Kenya’s economic outlook if geopolitical tensions persist.
The World Bank maintains that continued fiscal discipline, stronger domestic revenue mobilisation and more efficient public spending will be critical to sustaining investor confidence and supporting long-term economic growth.
Additional reporting based on the World Bank’s Kenya Economic Update (July 2026) and Central Bank of Kenya monetary policy statements.
