Kenya: GDP records fastest expansion in a year during Q1
According to a preliminary reading, GDP growth increased to 5.3% year on year in Q1 2023, from 3.7% in the fourth quarter of last year. Q1’s reading surprised markets on the upside, marking the best result since the first quarter of 2022.
From a sectorial perspective, the acceleration of GDP was broad-based. The agricultural sector drove headline GDP, growing 5.8% annually in the first quarter, contrasting the fourth quarter’s 0.9% decrease and marking the best reading since Q4 2020. Agricultural growth was underpinned by improved weather conditions, which alleviated the country’s most severe drought in forty years. Retail and wholesale trade sector growth improved to 5.7% in Q1, from the 2.7% increase in the prior quarter. In addition, the manufacturing sector gained steam, growing 2.0% in Q1 (Q4: +1.8% yoy). Finally, transport and construction activities increased by 6.2% in annual terms (Q4: +2.7% yoy) and 3.1% (Q4: +2.4 yoy), respectively.
In annual terms, economic growth is likely to have decelerated in the second quarter from Q1’s reading. Household consumption is expected to have slowed due to protests, a dollar shortage, the persistence of high inflation and tightening financial conditions. Turning to H2, investment is likely to benefit from strong government capital expenditure, improved investor sentiment, greater dollar availability and increased multilateral financing. Additionally, net exports should benefit from increased tourism and lower import demand. That said, tax hikes announced in the recent budget will weigh on private spending.