Kenya’s economic growth rate dipped to a two-year low in the second quarter of 2024.
Data from the Kenya National Bureau of Statistics (KNBS) said the country’s GDP expanded by 4.6%, down from 5.6% in the same period of the previous year.
“The growth, albeit slower than the corresponding quarter of 2023, was to a considerable extent supported by Agriculture, Forestry & Fishing (4.8%), Real Estate (6.0%), Financial & Insurance Activities (5.1%), and Wholesale & Retail (4.4%),” said the statistics body.
“However, the growth was somewhat hampered by contractions in the Mining & Quarrying and Construction sectors during the quarter under review.”
During the period, the Agriculture, Forestry, and Fishing sector grew by 4.8%, driven by increased production of sugarcane, milk, and fruit exports.
The manufacturing sector’s real GDP growth accelerated to 3.2%, supported by the food manufacturing sub-sector. The growth was supported by significant increases in the production of food, including soft drinks, sugar and milk, however slowed down by a 0.6% decline in Tea production.
The construction sector contracted by 2.9%, hampered by declines in cement production and motor vehicle assembly. For instance, during the second quarter of 2024, cement consumption declined by 7.8 per cent to stand at 2,053.9 thousand metric tonnes from 2,227.6 thousand metric tonnes in the corresponding period of 2023.
Electricity and Water Supply sector’s growth slowed to 1.0%, with a decline in total electricity generation. The slowed growth was due to a decline in total electricity generation, which decreased to 3,041.5 million kWh in the second quarter of 2024 from 3,088.6 kWh in the corresponding quarter of 2023. Generation of electricity from geothermal declined by 14.2 per cent to stand at 1,279.3 million KWh in the quarter under review. Similarly, the generation of electricity from wind and solar electricity decreased by 33.9 and 5.0 per cent to 334.8 million kWh and 114.4 million KWh, respectively, in the second quarter of 2024.
The Transportation and Storage growth in this sector decelerated to 3.6%, impacted by reduced demand for passenger and freight transport.
Accommodation and Food Service sector grew by 26.6%, boosted by increased visitor arrivals and conferences.
The Financial and Insurance Activities sector slowed to 5.1%, influenced by rising interest rates and credit costs.
Kenya’s Economy Faces Near-Term Challenges and Opportunities
According to Cytonn Investments, the Kenyan economy is projected to experience slower growth in the near term due to a challenging economic environment. Rising taxes, increased costs of living, and restrained business activity are contributing to this slowdown.
However, recent developments offer reasons for optimism:
- Lower Central Bank Rate (CBR): The CBK’s decision to reduce the Central Bank Rate (CBR) in August by 25.0 bps to 12.75% and the anticipation of further cuts will create a more accommodative monetary policy stance.
- Easing inflation: Inflation has significantly decreased to 3.6%, providing relief to consumers and businesses.
- Stronger Shilling: The appreciation of the Shilling is expected to reduce borrowing costs and improve access to credit. In the third quarter of the year, the Kenya Shilling gained against the US Dollar by 0.3%, to close at Kshs 129.2, from Kshs 129.5 recorded at the start of the quarter. On a year-to-date basis, the shilling has appreciated by 17.7% against the dollar, a contrast to the 26.8% depreciation recorded in 2023.
“Despite this, consumer purchasing power remains somewhat constrained, which may limit demand for goods and services, moderating economic growth,” says Cytonn in its Q3’2024 Markets Review.
“On a positive note, the agricultural sector, Kenya’s largest contributor to GDP, is expected to continue supporting growth due to favourable rainfall, while easing inflationary pressures and a strengthening Shilling provide further optimism for the economic outlook.”
Regional Economic Updates
- Uganda: The Ugandan economy grew by 6.6% in Q2 2024, driven by consumer demand, favorable weather conditions, and fixed income investments.
- Tanzania: Tanzania’s economy expanded by 5.6% in Q1 2024, led by construction and agriculture. The MPC maintained the policy rate at 6.0% due to low inflation.
- Rwanda: Rwanda’s economy grew by 9.8% in Q2 2024, with strong growth in services and industry. Inflation remained low at 1.7% in August.
