…Five out of eight major economies shrink due to inflation, external shocks
Africa's private sector recovery is showing signs of strain as the number of major economies reporting trade contraction more than doubled in three months, raising concerns that inflation, rising fuel costs and renewed geopolitical tensions are beginning to undermine the continent's economic rebound.
BusinessDay's analysis of the latest Purchasing Managers' Index (PMI) reports for eight African economies showed that five economies recorded contraction in May, up from three in April and two in March. The trend points to a weak business environment as companies grapple with rising operating costs, soft demand and rising uncertainty.
The decline comes despite a strong performance by a handful of economies, notably Nigeria and Uganda, which recorded the highest PMI reading on the continent at 54.1.
PMI being above 50 indicates improvement in business conditions, while being below 50 indicates contraction. The index is widely considered a leading indicator of economic activity and often provides an early indication of future GDP trends.
The latest data also shows that the continent's recovery remains uneven, with strong domestic demand supporting activity in some economies while others grapple with inflation pressures, rising transportation costs and weak consumer spending.
“After a strong 2025, Sub-Saharan Africa (SSA) enters 2026 poised to build on hard-won macroeconomic stabilization gains. However, the war in the Middle East has clouded the outlook, pushing up oil, gas and fertilizer prices, while high shipping costs have disrupted trade flows and increased economic uncertainty,” the World Bank said in its regional economic outlook for SSA released in April.
The multilateral lender said the conflict is expected to slash the region's growth outlook by 0.3 percentage points, with sub-Saharan Africa's economy now projected to grow by 4.3 percent in 2026, down from earlier forecasts.
“Oil-importing, non-resource-rich economies face a worsening trade balance and rising costs of living, while oil exporters benefit from higher export revenues but remain vulnerable to commodity-price volatility and cyclical policy risks. Downside risks remain elevated amid rising global uncertainty and persistent macroeconomic weaknesses across the region,” the bank said.
More economies headed for contraction
Among the economies surveyed, Kenya recorded the sharpest decline in business conditions, with its PMI falling 5.67 percent to 46.6 in May from 49.4 in April. Zambia came in second with a decline of 3.71 per cent, while South Africa's PMI fell by 3.50 per cent. Uganda and Ghana also recorded declines of 1.64 percent and 0.59 percent respectively.
Nigeria recorded the strongest month-on-month improvement, with its PMI rising 3.24 percent to 54.1 in May from 52.4 in April, its highest reading in 13 months. Egypt recorded the second-largest increase, with its PMI rising 1.07 percent to 47.1, while Mozambique's index rose 0.20 percent to 49.9.
In April, only Egypt, Zambia and Mozambique recorded contraction in private sector activity, while South Africa, Kenya, Ghana, Nigeria and Uganda remained in expansion territory. However, by May, the number of contracting economies had grown sharply, underscoring the fragility of the continent's recovery.
According to S&P Global, Nigeria's performance was driven by strong customer demand and new product launches.
“This impressive business position was primarily due to the accelerated expansion in both output and new orders, pointing to improved customer demand and the launch of new products,” said Muyiwa Oni, head of equity research West Africa at Stanbic IBTC Bank.
While input costs continued to rise, inflation pressures eased for the second consecutive month, he said. “This is also reflected in higher output prices, with the manufacturing and agricultural sectors seeing the fastest growth.”
The PMI survey, which covers agriculture, mining, manufacturing, construction, wholesale, retail and services, is compiled from responses of nearly 400 private sector companies.
Kenya, South Africa and other countries are facing increasing pressure
Whereas Nigeria and Uganda While bright spots remained, trading conditions weakened across much of Eastern and Southern Africa.
Kenya's PMI fell to a 10-month low as inflation rose from 5.6 percent in April to 6.7 percent in May, according to the Kenya National Bureau of Statistics.
Soft sales, cash-flow shortages and rising costs weighed heavily on business activity, according to Standard Bank economist Christopher Legilisho.
“These declines could be due to the week-long disruption in business activity due to nationwide protests by transport sector players, which has disrupted mobility,” he said.
Legilisho said rising fuel and transportation costs have added to inflationary pressures and weakened consumer demand.
“Nevertheless, despite the slowing pace of business, companies remain optimistic about future conditions,” he said.
Outlook turns bleak due to inflation and Middle East tensions
Since the outbreak of the Middle East conflict in February, disruptions to shipping through the Strait of Hormuz, a vital route for global oil, gas and fertilizer exports, have pushed up energy, transportation and fertilizer costs, complicating the inflation outlook and increasing operating expenses for businesses across the continent.
The World Bank has warned that the conflict could undermine recent progress in reducing inflation in sub-Saharan Africa. The lender expects energy prices to rise 24 percent this year, while fertilizer prices could rise by more than 30 percent as supply disruptions continue.
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High fuel and fertilizer costs pose a particular risk to African economies that rely heavily on imports, threatening both trade profitability and food production. Rising input costs may also delay interest rate cuts in many economies as central banks seek to control inflationary pressures.
In Nigeria, headline inflation rose for the second consecutive month to 15.69 percent in April, the highest level in five months, reversing an 11-month deflation trend. Food inflation also rose to 16.06 percent as higher fuel costs and supply-chain disruptions weighed on consumer prices.
Economists expect inflation pressures to intensify following another rise in domestic fuel prices, potentially complicating the policy outlook for the Central Bank of Nigeria, which left its monetary policy rate unchanged at 26.75 percent last month.
“Rising fuel costs following the outbreak of war in the Middle East continued to push up purchasing prices in May,” the authors of the Nigeria PMI report said.
He said purchasing costs continued to rise rapidly, although the overall pace of inflation fell to a three-month low. “Where companies increased employees' wages, it was often to provide assistance for higher living costs and especially transportation.”
