The World Bank reports that growth hit 4.6% in 2025. The World Bank now attributes the deceleration primarily to the ongoing conflict involving the US, Israel, and Iran.
Higher energy and fertilizer costs from the conflict are raising production costs. That affects farmers and factories. At the same time, Kenya faces domestic pressures: weaker money sent home from workers abroad, high debt-service costs, and weak government revenue.
The US-Israeli war with Iran raises the price of crude oil and fertilizer, two things Kenya relies on. That means more expensive fuel and fertilizer for crops.
"Higher global energy prices and increased uncertainty are expected to raise production costs, weaken private investment growth, and weigh on household purchasing power through higher commodity prices and moderating remittance inflows," the World Bank report said.
The government has little room to spend. High debt costs eat up its budget. Low revenue means it cannot help farmers or businesses much.
Get the market news that matters in a five-minute read with Market Briefs, our free daily newsletter
Kenya's government is trying to fix its finances. The budget deficit - the gap between what it spends and what it earns - is shrinking. For the year ending June 2027, the deficit is projected at 5.7% of GDP.
This compares to a projected 6.8% deficit in the budget year that ended last June. But the Treasury itself projects a 5.5% deficit for the 2026-27 budget year.
One move: Kenya swapped $3.5 billion owed to China's Export-Import Bank into yuan, benefiting from lower interest payments. Still, the World Bank warns of pressure. "High public debt and persistent fiscal pressures continue to constrain fiscal space, while rigid expenditure commitments and large debt-servicing obligations limit the government's ability to absorb shocks and expand priority social and development spending," the report said.
The government plans to sell some state assets. However, the majority of those funds are intended for infrastructure projects rather than directly reducing the deficit. Fiscal consolidation - meaning the government spends less - will continue.
Kenya has a general election in August 2027. The approaching election could cause businesses to postpone investment choices, which would dampen economic activity, increase policy unpredictability, and delay reform progress.
Higher fuel prices could push up inflation. The central bank targets inflation between 2.5% and 7.5%. The World Bank expects price growth to remain within that range.
Watch fuel prices at the pump. If they rise faster, inflation may break the central bank's target. Also watch the election campaign - it may delay new spending and reforms.
The government will keep tightening its belt. Kenya's growth will stay slow until the global shock fades and domestic confidence returns.
Join Market Briefs, our free daily newsletter, for a quick daily rundown of the markets
