Country Report Kenya October 2012

Update Country Report Kenya 06 Jul 2012

Real GDP growth slides to 3.5% in the first quarter


Real GDP growth decelerated to 3.5% year on year in the first quarter of 2012, the slowest rate since the final quarter of 2009, according to the latest data from the Kenya National Bureau of Statistics (KNBS).


The slowdown was broad-based, driven by three main factors: drought, slack credit growth stemming from high interest rates, and weaker global conditions, especially in Europe, which curbed external demand and tourism. Growth in agriculture (a sector that accounts for 21% of GDP) remained weak, at 2.3%, owing to dry and cold conditions: tea output slipped by 14.9% year on year. However, farming grew slightly faster than in 2011, when drought cut expansion to just 1.6%. Manufacturing showed a similar pattern, edging up to 3.8% in the first quarter after recording a sluggish 3.3% in 2011.

The deceleration was most pronounced in the services sector, as households curtailed spending owing to costlier credit. Tighter money is helping to curb inflation (which ebbed to 10% in June) but at the expense of consumption. Services growth slipped to 4.2% in the first quarter-from 5.2% in 2011-although it remained higher than agriculture and industry. Transport and communications, and retailing (the second- and third-largest sectors) both grew more slowly than in the previous quarter, although they stayed above 5%. Public services, real estate, and hotels and restaurants, a proxy for tourism, similarly retreated. Separate data show that visitor arrivals fell by 0.5% year on year in the first quarter (to 312,258), the first decline since 2008, because of weak conditions in Europe. Growth in financial intermediation of 3.8% was much slower than a year ago, reflecting slower credit. The KNBS also revised past data, lifting growth to 2.7% in 2009 (from 2.6%) and to 5.8% in 2010 (from 5.6%).

Real GDP growth by sector
(% real change, year on year, unless otherwise indicated)
 2011    2012
Sector (ranked by size)Year1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr
Agriculture (incl forestry & fishing)
Transport & communications4.
Wholesale & retail trade7.
Public administration (incl education)
Real estate, renting & business services3.
Financial intermediation7.812.
Power & water-2.64.8-3.2-
Hotels & restaurants5.
Mining & quarrying7.16.710.
GDP (incl others)
GDP, seasonally adjusteda– 1.5-
a Compared with the previous quarter.
Source: Kenya National Bureau of Statistics.

Impact on the forecast

Growth will rebound in April to December, helped by satisfactory rains in the second quarter (which will boost agriculture and hydropower), and lower interest rates and faster credit take-up in the second half. However, based on the weak first quarter and continued global uncertainty, the EIU has trimmed its growth forecast for 2012 to 4.7% (from 5.1%).

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