As the Christmas season approaches, Kenyan businesses are facing a mixed outlook, with many anticipating subdued sales due to persistent financial strain on households. While some sectors, particularly travel and seasonal retail, are experiencing increased demand, others catering to daily office workers and general groceries report a significant drop in clientele. This reflects a broader trend of cautious consumer spending driven by high inflation and squeezed disposable incomes.

Historically, Christmas has been a period of heightened consumer activity in Kenya, with households often spending over half their monthly income on festivities, gifts, and decorations. However, recent years have seen a shift, with a 2022 report indicating a 17% reduction in Christmas spending compared to 2021. A 2023 study by WorldRemit projected Kenyans would spend 1.08 times their average monthly income on Christmas, a 24% increase from the previous year, primarily due to rising food costs.

Economic Headwinds and Consumer Behaviour

Kenya's economy has experienced a modest rebound in 2024, with a projected Gross Domestic Product (GDP) growth of 4.7%, a decrease from 5.6% in 2023. The fourth quarter of 2024 saw a 5.1% year-on-year growth, driven by agriculture and finance, though overall annual growth fell short of 2023 figures. Inflation has been a persistent concern, with the annual rate reported at 4.49% in 2024. While the Central Bank of Kenya (CBK) has successfully worked to ease inflation, which decelerated to 2.73% in October 2024, the cumulative effect of high costs over time continues to impact household budgets.

A TransUnion Consumer Pulse Study for Q2 2024 revealed a modest financial rebound for Kenyan households, with 34% reporting an increase in income, particularly among Gen Z and Millennials. Despite this, 56% of households, especially Gen X, reduced discretionary spending in the preceding three months. Consumers are optimistic about future income, with 85% expecting an increase over the next 12 months, but this has not yet translated into a significant loosening of holiday spending.

Impact on Retail and Hospitality

The retail sector in Kenya has shown resilience, with average rental yields increasing to 7.6% in 2024 from 7.5% in 2023, and occupancy rates rising to 81.0%. This growth is attributed to the expansion of both local and international retailers. However, the festive season presents a nuanced picture. While retailers of seasonal items like decorations and gifts see a surge, grocery stores are noting a shift in consumer behaviour, with many cutting back on non-essentials.

The hospitality sector is also experiencing varied fortunes. Establishments in popular tourist destinations are seeing increased bookings, but those reliant on local clientele are facing a slowdown, indicating cautious spending patterns among Kenyans. Transport services, conversely, have benefited from increased travel to rural areas, leading to higher fares to offset potential empty return trips.

Uncertainties and Future Outlook

An InfoTrack survey in late 2024 indicated that a significant 86% of Kenyans would not be celebrating Christmas in the traditional way due to financial limitations. This highlights the deep impact of economic pressures, including rising food and fuel costs, and the absence of traditional holiday bonuses for many. Youth unemployment remains a major concern, making it difficult for young adults to cover basic expenses, let alone holiday costs.

The government's manufacturing support programme, launched in January 2024, aims to boost household earnings and job creation. Economists predict a modest recovery in 2025, supported by ongoing economic stimulus plans and efforts to stabilize public finances. However, risks from global economic volatility, geopolitical tensions, and domestic debt pressures persist. The ability of the government to balance debt reduction with investment in key sectors will be crucial for sustained recovery.

What to Watch

The performance of the retail and hospitality sectors during the remainder of the festive season will offer key insights into consumer confidence. Observers will also be watching for the impact of government economic policies and global market trends on inflation and disposable income in early 2025. The resilience of Kenyan households and businesses in adapting to these economic realities will be a defining factor in the coming months.