Projects the economy will expand by 4.3% down from 4.6% recorded in 2025 Kenya's economy is expected to slow further this year as the ripple effects of the Middle East conflict weigh on businesses, households and government finances, World Bank has warned. This is in addition to rising fuel prices and persistent fiscal pressures.
In its latest Kenya Economic Update, the lender projects the economy will expand by 4.3 per cent in 2026, down from 4.6 per cent recorded in 2025, marking a downgrade of about 0.6 percentage points from its earlier forecast before the escalation of geopolitical tensions in the Middle East.
The report says higher global oil prices, rising transport costs, expensive imports and weaker remittance inflows have combined to dampen Kenya's growth prospects despite improvements in macroeconomic stability over the past year. "Economic growth moderated slightly in 2025 despite easing inflation, accommodative monetary policy and recovering private sector credit," the World Bank says, noting that a severe drought in late 2025 and the external oil shock have weakened momentum.
The lender notes that before the Middle East conflict intensified, Kenya had made significant progress in stabilising the economy, with inflation remaining largely within the Central Bank's target range. The monetary policy rate falling from 11.25 per cent in January 2025 to 8.75 per cent in February 2026, helped revive private sector lending.
However, the renewed global energy crisis has quickly reversed some of those gains. Fuel prices surged sharply between March and April, with diesel prices rising by nearly 18 per cent and petrol by more than 10 per cent, pushing transport inflation close to 10 per cent while food inflation climbed to 8.6 per cent in June.
The higher fuel costs have increased operating expenses for manufacturers, transporters and other businesses while eroding household purchasing power. The World Bank estimates that the higher cost of living could push between one million and 2.4 million more Kenyans below the poverty line this year, depending on how much of the fuel price increase is passed on to consumers.