Economy loses further steam in Q3

Protests continue to chip away at momentum: Economic growth continued to wane in the third quarter, slowing to 4.0% year on year (Q2: +4.6% yoy) and clocking one of the worst readings since the end of the pandemic. Kenyans took to the streets at the tail end of Q2, protesting against corruption plus several attempted tax hikes amid the cost-of-living crisis; these demonstrations persisted through most of Q3, disrupting activity across all sectors of the economy. On a seasonally adjusted quarter-on-quarter basis, economic activity rose 1.0% in Q3 (Q2: +0.9% qoq s.a.).

Industrial sector the chief drag on growth: On the production front, the annual GDP moderation was broad-based and led by the industrial sector, which declined for the first time since Q2 2020. In particular, mining and quarrying slid at a faster clip of 11.1% in Q3 (Q2: -2.7% yoy), and manufacturing output growth cooled to 2.3% from 3.3% in the prior quarter. Growth in agricultural sector output—which accounted for over 21% of GDP in 2023—slowed to 4.2% annually in the third quarter from the second quarter's 4.8% increase. This marked the worst result since Q4 2022, despite favorable weather in the first nine months of the year. Meanwhile, the tertiary sector is not firing on all cylinders. On the one hand, financial services rose at a four-year low of 4.7% (Q2: +5.1% yoy). On the other hand, retail and wholesale trade growth edged up to 4.8% in Q3 from Q2’s 4.4%, and the transport sector gained momentum to 5.2% (Q2: +3.6% yoy).

Economy to accelerate ahead: Our panel expects the economy to have ended 2024 on a brighter note, expanding broadly in line with its past-decade average of 4.7%. Households likely benefited from a sharp decline in inflation plus interest rate cuts and the economy as a whole from a period of renewed calm, as protests ceased in Q4. In 2025, economic growth should strengthen as accelerating fixed investment—buoyed by laxer financing conditions—outweighs softer momentum in exports. Renewed political instability is a key downside risk.

Panelist insight: EIU analysts commented: “We believe that Kenya will turn a corner in 2025 as the fiscal deficit is gradually reined in and as further large reductions in interest rates lift the economy. The relatively strong performance of the wholesale/retail, transport/storage and financial sectors points to a recovery in 2025.” Oxford Economics’ Shani Smit-Lengton said: “A strong performance by the services sector and a rebound in industrial activity will likely drive [faster] growth. However, achieving the projected growth rate will largely depend on the government's ability to effectively manage fiscal reforms and address escalating debt. Key risks to our outlook include potential fiscal slippages, extreme weather events, and external economic pressures.”

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