Kenya’s manufacturing and ICT sectors are set to bear the brunt of the US-Israel war with Iran, even as the economy is seen growing at a softer pace this year on uncertainties.
The Central Bank of Kenya (CBK) has cut its economic growth forecast for 2026 by 0.4 percentage points to 4.9 percent, down from 5.3 percent previously on the implications of the war.
“The growth of the economy is projected at 4.9 percent in 2026 compared to our previous projection of 5.3 percent, and this downward revision mainly reflects the continued uncertainty and implications of the conflict in the Middle East on the performance of some of the key sectors,” CBK Governor Kamau Thugge said.
The ICT sector is expected to grow by a slower rate of 5.4 percent from 6.7 percent previously. Growth in the real estate sector is projected to fall by a similar margin to 5.2 percent, down from a forecast of 6.4 percent.
The manufacturing sector is also expected to take a major hit with the CBK downgrading its growth projection to 1.9 percent, down from 3 percent.
The Iran war will compound headwinds for the manufacturing sector, which is already in decline, with growth having slowed to two percent in 2025 from three percent previously, while its share of the economy has declined since 2023 to 7.1 percent.
The war has resulted in high energy prices, which make up significant inputs for industry, while disruptions in supply chains are expected to impact the export and import of essential goods and services.
Other key sectors expected to see softer growth from CBK’s previous forecast in April include transport and storage, which is seen expanding by 3.6 percent from 4.3 percent, and wholesale and retail trade, whose expansion is now seen at a flat four percent from 4.6 percent previously.
The sectors of agriculture, construction and education are also expected to slow down marginally in the face of uncertainty.
The CBK, however, expects growth in the construction sector to be anchored on a resurgence in projects including affordable housing as the State ramps up work on cheap homes ahead of the August 2027 General Election.
The payment of pending bills to road contractors and projects based on public-private-partnerships is expected to further support resilience in construction.
Only the accommodation and food services sector is seen growing faster at 12.2 percent from eight percent previously, supported by improved tourist arrivals at the start of 2026.
The sectors of mining and quarrying and finance and insurance have had their growth projections held steady at nine and 6.4 percent respectively in the latest forecast.
CBK expects improved credit uptake across key sectors of the economy to offset part of the uncertainties emanating from the Middle East war.
The Kenyan economy grew at a slow rate of 4.6 percent last year from 4.7 percent in 2024 on lower-than-expected output from the agriculture sector, which represents one-fifth of gross domestic product.
