Kenya: Kenyan economy accelerates at a robust pace for the second consecutive quarter in Q1 2018
June 29, 2018
The latest national accounts data released by Kenya’s National Bureau of Statistics on 29 June published GDP figures for both the final quarter of last year and the first quarter of the current year. The economy expanded 5.7% annually in Q1 2018 and 5.3% in Q4, up from a revised 4.7% in Q3 (previously reported: +4.4% year-on-year). Improved weather conditions and more upbeat business and consumer confidence, thanks to a return to political stability following last year’s prolonged election cycle, powered the upturn in both quarters. Growth in quarter-on-quarter seasonally-adjusted terms shot up to 1.7% in Q4 from a revised 1.1% rise in Q3 (previously reported: +0.9% quarter-on-quarter), before edging up to 1.9% in Q1.
Looking at a breakdown by production, most sectors improved. The agricultural sector made a marked recovery in Q1 on the back of favorable weather conditions, including the onrush of heavy rains in early March, with output expanding 5.2% after losing considerable pace in Q4 when it slowed to a 1.4% expansion (Q3: +3.8% yoy). Manufacturing output rebounded in Q1, growing 2.3% after contracting 0.4% in Q4, which followed a flat reading in Q3. Higher economic growth was also supported by a surge in the real estate sector, which expanded 6.8% in Q1 (Q4: +6.3% yoy; Q3: +6.1% yoy) and a steady pace of expansion in wholesale and retail trade (Q1: +6.3% yoy: Q4: 6.2% yoy).
On the other hand, both the mining and quarrying, and electricity and water supply sectors recorded a slower pace of expansion in Q1. Mining and quarrying output lost momentum for the second consecutive quarter, expanding 4.5% in Q1 (Q4: +5.0% yoy; Q3: +6.4% yoy). Although the electricity and water supply sector grew a robust 5.1% in Q1, largely owing to geothermal power generation, the sector slowed slightly from a 5.8% upturn in Q4 (Q3: +4.5% yoy).
This year, the government’s record-high budget for the 2018/2019 financial year should support an accelerated pace of expansion through increased infrastructure spending, but the drive to achieve greater fiscal consolidation at the same time will be tough given the administration’s poor track record in meeting revenue collection targets in recent years. And while the proposal to repeal the cap on commercial bank lending rates—a policy that has long stymied the availability of credit for high-risk borrowers, has been tabled through the income tax bill—the Treasury will face a tough battle in doing so, owing to stiff opposition from parliament.
Offering their take on the budget, EFG Hermes’ research team stated:
“As in 2017/18, we think potential revenue shortfalls will require the government to submit supplementary budgets through the fiscal year, which could lead to the deficit coming in higher than the 5.7% estimated by the finance minister, which in turn could worsen the country’s growing debt burden. Banks currently own more than 50% of total domestic outstanding debt, given that the government intends to raise almost half of the net additional borrowing from domestic sources, any offshoot in the budget estimate is likely to further crowd out the private sector, especially since banks’ exposure to government securities is already at a seven-year high (due to the introduction of rate caps in 2016).”