Kenya: GDP contraction softens notably in Q3
January 27, 2021
According to Kenya’s Statistical Institute, GDP shrank 1.1% year-on-year in the third quarter of 2020, moderating from Q2’s 5.5% contraction, which had been the first in at least a decade (previously reported: -5.7% year-on-year).
Looking at the details of the release, growth in the mining and quarrying sector (Q3: +18.2% yoy; Q2: +10.0% yoy), the construction sector (Q3: +16.2% yoy; Q2: +3.9% yoy) and the information and communication sector (Q3: +7.3% yoy; Q2: +4.6% yoy) accelerated in the quarter. Moreover, the transport and storage sector clocked 2.9% annual growth, swinging from the previous quarter’s 11.4% dive, likely due to the easing of Covid-19 restrictions in July–September before the second wave emerged.
Meanwhile, other sectors contracted at a softer pace compared to the previous quarter. The manufacturing (Q3: -3.2% yoy; Q2: -3.9% yoy), accommodation and restaurants (Q3: -57.9% yoy; Q2: -83.2% yoy), retail and trade (Q3: -2.5% yoy; Q2: -7.0% yoy) and education (Q3: -41.9% yoy; Q2: -56.2% yoy) sectors all decreased at softer rates in the third quarter, due to the gradual resumption of economic activity as restrictions were lifted. However, tourism-related activities remained depressed as restrictions abroad continued to curb foreign arrivals.
Lastly, growth in the all-important agricultural sector slowed in the quarter (Q3: +6.3% yoy; Q2: +7.3% yoy). While it was supported by good weather and an increase in tea and sugarcane production, coffee and vegetable exports declined, hampering the sector’s overall performance. Meanwhile, the health sector grew at a more moderate rate in the period (Q3: +5.6% yoy; Q2: +10.3% yoy).
Economic performance should have improved further in the final stretch of last year. However, looking ahead, the tourism sector will remain downbeat as renewed restrictions to curb further waves and new variants of the virus continue to inhibit international travel. Nevertheless, the continuity of accommodative monetary policy should support activity and cushion the downturn somewhat.
Regarding the country’s economic outlook, analysts at EIU commented:
“The outlook generally points to an acceleration of economic growth over the medium-term from a slump in 2020 as credit conditions stay favorable. A prominent hold-back will be lower public investment as the government attempts to reduce debt overhangs, with the private sector incompletely picking up the slack.”
Author: Marta Casanovas , Junior Economist