Executives in the manufacturing sector are the most pessimistic about economic growth over the next 12 months, put off by the consequences of the US-Israel war against Iran.
Findings of a latest survey by the Central Bank of Kenya (CBK) in March 2026, show that the CEOs of companies in manufacturing had the lowest growth prospects when contrasted to their counterparts in agriculture and services.
Only 37.5 percent of manufacturing firms expected higher growth over the next year, compared to 87.5 percent and 45.7 percent for agriculture and services respectively.
The pessimism in growth prospects among manufacturers came amid mixed expectations on business activity for the second quarter of 2026, where the outlook highlighted a rising cost of doing business driven by higher input costs, elevated energy prices, expected import inflation and supply chain disruptions.
‘The balance of opinion shows a continued pickup in purchase prices/import costs, driven by heightened geopolitical tensions, uncertainty in global energy markets on the impact of US tariffs and policy changes,’ CBK said in the survey.
‘On the other hand, sales prices are expected to register only a marginal increase, as firms cautiously adjust to rising production costs.’
This suggests that manufacturers will largely seek to absorb additional costs resulting from the Iran war shock, as opposed to passing them on to customers through higher prices for goods.
Kenya is battling renewed inflationary pressure amid disruption in the importation of key items, including petroleum products.
The ongoing Middle East war, which first started on February 28, has disrupted activities on the Strait of Hormuz, a global chokepoint serving as an artery for 20 percent of the world’s total oil supply and 30 percent of the world’s maritime trade.
The hit from the fresh wave of geopolitical tensions will compound headwinds on the sector, which is already feeling the heat from US trade tariffs and policy changes that began in April last year.
Manufacturing was among the most impacted sectors from the last wave of external shocks represented by the US trade tariffs alongside tourism and hospitality, financial services, professional services and agriculture.
‘These effects are largely transmitted through elevated cost of imported inputs, which have raised domestic production costs, as well as weakened demand in key export destinations, thereby dampening export performance,’ CBK added.
Manufacturers have cited the business environment as the leading factor constraining firms’ expansion. Other identified constraints include reduced consumer demand, the economic environment, increased taxation and supply chain disruptions.
CBK expects the manufacturing sector to face a significant hit from the ongoing war although the economic segment is still expected to grow faster in 2026 than last year at 3 percent from an estimated 2.2 percent last year.
The apex bank revised Kenya’s growth projection for 2026, earlier this month, from 5.5 percent to 5.3 percent to reflect the emerging risks of the conflict in the Middle East on the performance of some key economic sectors.
‘Higher energy prices attributed to the war in Iran are expected to affect key sectors such as manufacturing, transport and storage, accommodation and food services, and wholesale and retail trade,’ CBK said.
Other global institutions have also cut expectations on Kenya’s growth in 2026 including ratings agency Fitch, the World Bank and the International Monetary Fund (IMF).
The IMF, which cut its forecast from 4.9 percent to 4.5 percent last week, cited rising energy costs, risks to remittances and export disruptions linked to the war in the Middle East.