Global rating agency Fitch has cut its 2026 growth forecast for Kenya from 5.2 percent to 5.0 percent amid a projected surge in inflation, fuelled by the aftershocks of the escalating US-Israel war with Iran.

The rating agency warns that inflation in sub-Saharan African nations, including Kenya, will run a ‘bit hotter’ than previously expected, reflecting the longer-than-initially-anticipated duration of the US-Israel conflict with Iran, which started on February 28.

The war is already sending shockwaves through the global economy, driving up energy costs, disrupting crucial shipping routes, and threatening to stifle global growth prospects.

“Kenya stands out as one of the Sub-Saharan Africa economies most exposed to the Middle East conflict, prompting us to revise down 2026 real GDP (gross domestic product) growth to 5 percent, from 5.2 percent pre-conflict,” Fitch says in a latest forecast dated April 1.

“While fuel prices have remained stable in Kenya so far – reflecting shipments priced in February – we expect a sharp upward adjustment in mid-April. Consequently, we have raised our average annual inflation forecast to 5.5 percent, up from 4.6 percent pre-conflict.”

Kenya’s economy is projected to have expanded by 5 percent in 2025 from 4.7 percent in 2024, and the National Treasury projects a growth rate of 5.3 percent in 2026.

Fitch says the expected increase in the prices of goods and services is likely to weigh on consumers already concerned about the cost of living, potentially increasing social tensions.

“Higher cost of living would prompt a sharp rise in public dissatisfaction. Uptick in protests is likely if fuel prices rise,” it says.

A sharp rise in the cost of tomatoes and beef pushed Kenya’s inflation back to 4.4 percent in March, reversing the slight easing recorded in February and signalling renewed pressure on household budgets.

Kenya National Bureau of Statistics(KNBS) data showed that Kenya’s annual inflation rose from 4.3 percent in February, driven largely by increases in food prices, which remain the most volatile and influential component of the consumer basket. The March figure pushed the inflation rate back to levels last seen in January.

The ongoing Middle East war first started on February 28 when the US and Israel launched surprise airstrikes on multiple sites and cities across Iran, killing Supreme Leader Ali Khamenei and numerous other Iranian officials.

Iran responded with missile and drone strikes against Israel, US bases and US-allied countries in the region.

This has led to the closure of 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.

Read: Shilling hits Sh130 amid rising demand for dollars

Economists at the Institute of Economic Affairs say that while a short-term conflict would have limited and manageable effects on Kenya, mid-to long-term escalation would pose significant macroeconomic, social and security challenges, with energy prices, inflation and trade disruptions, particularly through the Red Sea, representing the most immediate transmission channels.

The economists say the loss of the Persian Gulf as a destination market as a result of the Iranian attacks would expose Kenya to a loss of $ 1.073 billion(Sh139.08 billion) or 41.44 percent of its exports to Asia, while on the imports side, the country would lose supplies of $ 3.57 billion(Sh464.06 billion) from the region.

Fitch says a more prolonged conflict would have a more substantial impact on Kenya’s external accounts, given the country’s current account vulnerabilities and sensitivity to portfolio outflows, which would weigh on the shilling and further fuel imported inflation.

“Assuming energy markets normalise after April, pressure on Kenya’s external accounts should be limited. However, a more prolonged conflict would have a more substantial impact, given Kenya’s current account vulnerabilities and sensitivity to portfolio outflows, which would weigh on the shilling and further fuel imported inflation,” it says.

“In addition, higher fertiliser costs are likely to result in some degree of under-application, weighing on agricultural yields later in the year and adding upside to food prices. That said, given our current view that energy markets normalise beyond April, the inflationary impulse should prove largely transitory.”

→ janyanzwa@ke.nationmedia.com

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