Economy
Kenya’s economic growth slowed to 5.3% in the first quarter
Tuesday 04 July 2023
Karaoke Jatiba arranges groceries at his stall in Nyeri City Market on May 3, 2023. Photo | Joseph Kanye | NMG
Kenya’s economic growth in the first three months of the year slowed on the back of a slowdown in most major sectors amid a pickup in agricultural activities, the statistics agency announced on Tuesday.
The Kenya National Bureau of Statistics said the economy grew by 5.3 percent in the first quarter compared to 6.2 percent in the same period last year.
The pace of growth in gross domestic product – a measure of national economic output adjusted for inflation – has slowed due to lower activity in key economic sectors such as manufacturing, construction and transportation.
However, activities in Kenya’s primary agriculture sector rebounded to grow by 5.8 percent compared to a contraction of 1.7 percent in the same period last year.
“The notable improvement in the sector’s performance is attributed to favorable weather conditions that boosted production, particularly food crop production during the period under review,” KNBS said in its quarterly GDP report. “The performance was evident in the significant increase in exports of vegetables and fruits, which was recorded during the previous quarter.”
Despite the overall growth in agricultural production compared to the same quarter of last year, producers of tea, coffee, sugarcane and milk recorded weak production on the back of severe drought from previous quarters.
Shipments of milk to processors decreased by 15.7 percent to 166.5 million metric tons, tea by 13.0 percent to 118,100 metric tons, and coffee volume by 5.4 percent to 11,284.9 metric tons, while shipments of sugarcane to mills increased by 0.4 percent to 2.17 million tons.
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Self pressure
KNBS said the expansion in economic activity was more affected by high inflation — a 12-month measure of the cost of living — which averaged 9.13% in the January-March period compared to 5.34% in the corresponding period in 2022.
This was mainly driven by higher food and energy prices amid a weaker currency, which fell 11.1 percent against the US dollar, the reserve currency in international trade.
The Central Bank of Kenya, which is primarily tasked with stabilizing demand-driven rates, increased its benchmark interest rates to 9.50 percent in the review period from 8.75 percent to manage expectations for a further increase in the cost-of-living measure.
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Increasing the prime lending rate makes borrowing more expensive as banks use the rate as a basis for loading their spreads when pricing loans. Growth in the benchmark central bank rate, technically known as (monetary) policy tightening, is expected to prompt consumers to cut or defer spending on luxury goods, thus helping to curb rising inflationary pressures from the demand side.
sectoral performance
Rising inflation amid the depreciation of the shilling hurt output in the manufacturing sector, which relies heavily on overseas markets for supplies.
Growth in the sector slowed to 2.0 percent from 3.8 percent in the first quarter of 2022, supported by the production of bakery products such as bread as well as the processing and preservation of fish.
Activities in the transportation and storage sector also slowed to 6.2 percent from 7.7 percent a year earlier, supported by rail services amid rising fuel costs, which hurt road transport fares.
Growth in the construction sector, which was largely driven by public investment in infrastructure projects, slowed by half to 3.1% from 6.0% previously on the back of lower cement consumption.
Other sectors recording slow expansion include financial and insurance services, up 5.8% from 17.0%, with cost of borrowing and information and communication technology rising 8.7% from 9.0%.
Accommodation and food service activities — whose real value added to the economy has not yet recovered to pre-Covid-19 pandemic levels — grew 21.5 percent compared to 40 percent, the KNBS report said.
KNBS said: “The accommodation and food service activities sector is growing steadily due to dissipating the effects of the Covid-19 pandemic, which has consequently improved the economic environment in most tourist destinations.”
“Visitor arrivals through the two major airports (Jomo Kenyatta and Moi International Airport) increased by 50 per cent from 225,321 visitors in the first quarter of 2022 to 337,937 visitors in the quarter under review.”