Kenya: Kenyan economy grows at the fastest pace in one-and-a-half years in Q2
September 28, 2018
The latest national accounts data released by Kenya’s National Bureau of Statistics on 28 September revealed that the economy sped up in the second quarter, growing 6.3% in annual terms, which marks the fastest pace of expansion since Q4 2016. This came above the first quarter’s 5.7% expansion. Favorable weather conditions characterized by heavy rainfall fueled upturns in agricultural output and hydroelectric activities. Growth in quarter-on-quarter, seasonally-adjusted terms, however, slowed to 1.5% in Q2 from 1.9% in Q1.
A breakdown by production shows that most sectors recorded a higher growth. The agricultural sector grew 5.6% in Q2 compared to 5.2% in Q1, and manufacturing output also accelerated on the back of a rise in agro-processing activities, growing 3.1% in Q2 (Q1: 2.3% year-on-year). Moreover, wholesale and retail trade picked up, with growth of the sector rising to 7.7% in Q2, up from 6.2% in Q1, signaling improved private consumption. On the flip side, construction activity lost steam, with growth in the sector falling from 7.2% in Q1 to 6.1%. While moderating from the previous quarter, growth of the sector was underpinned by the construction of the second phase of the Standard Gauge Railway. The education sector also lost pace (Q2: 6.3% yoy; Q1: 6.8% yoy), along with the financial and insurance sector (Q2: 2.3% yoy; Q1: 2.6% yoy). A long-standing cap on interest rates charged by commercial banks has constrained the growth of the financial and insurance sector and stymied the availability of credit to small- and medium-sized enterprises.
Rising business confidence and the government’s “Big Four” Agenda should buoy economic growth in the coming year through higher infrastructure spending and investment in the key sectors of food security, affordable housing and healthcare, and manufacturing. Although inflation was higher on average in Q3 compared to H1, robust foreign exchange reserves coupled with strong capital inflows have kept the Kenyan shilling (KES) on a largely stable path. On the public finance front, the aim to strengthen fiscal metrics will be challenging given the administration’s poor track record in meeting revenue collection targets in recent years.