Kenya: Kenyan economy maintains robust pace in the third quarter
December 31, 2018
The latest national accounts data released by Kenya’s National Bureau of Statistics on 31 December showed that the economy grew at a strong pace again in the third quarter, despite losing some momentum from the previous quarter. Annual GDP growth edged down to 6.0% in Q3, from Q2’s revised 6.2% expansion (previously reported: +6.3% year-on-year). A continuation of favorable weather conditions, characterized by heavy downpours, have been a boon for agricultural and hydroelectric activities. Healthy remittance inflows and a marked increase in tourism earnings against a strengthening shilling also drove the strong outturn and helped to narrow the current account deficit by nearly a quarter compared to the same period last year. Growth in quarter-on-quarter, seasonally-adjusted terms, meanwhile, moderated to 0.9% in Q3 (Q2: +1.3%).
A breakdown by production showed that strong expansions in the agricultural, construction, and mining and quarrying sectors led the robust quarterly expansion. The construction sector accelerated notably, growing 6.8% in Q3 compared to 6.1% in Q2, along with the mining and quarrying sector which gained considerable speed. Mining and quarrying output climbed 8.5% in the third quarter, following a 3.5% expansion in the preceding quarter. Meanwhile, although weakening slightly from Q2’s 5.4% rise, the agricultural sector grew at a solid pace of 5.2% in Q3, thanks to better weather. A largely stable supply kept prices of the main food crops subdued. Electricity and water supply also rose robustly on the favorable conditions, rising 8.5% in the third quarter, just down a notch from Q2’s 8.6% upturn. The strong expansion was fueled by continued marked growth in the generation of hydro and geothermal energy. Behind the third quarter’s slight downturn was a loss of pace in wholesale and retail trade, which grew 6.8% compared to 7.7% in the second quarter, signaling a fall in private consumption growth.
The economy’s strong pace of expansion should be sustained in 2019 on the back of increased infrastructure investment in the key sectors of manufacturing, food security, affordable housing and healthcare, underpinned by the government’s five-year “Big Four” Agenda. Meanwhile, robust foreign exchange reserves garnered through solid remittances and thriving tourism activity, combined with strong capital inflows, should help to keep the Kenyan shilling (KES) on a largely stable path. While efforts have been taken to strengthen the fiscal account through the introduction of small tax measures, the absence of large fiscal reforms, coupled with increased spending, pose challenges to the government in meeting its ambitious revenue collection targets. Moreover, the reduced availability of credit to small- and medium-sized enterprises, owing to the prolongation of the interest rate cap on commercial bank lending rate, will likely continue to pose downside risks to growth.