FocusEconomics Consensus Forecast Kenya

Kenya Economic Outlook

GDP contracts for first time in 10 years in Q2

Kenya’s economy contracted for the first time in a decade in the second quarter. GDP shrank 5.7% year-on-year, after having recorded 4.9% growth in the first quarter.

Contractions in the accommodation and restaurants sector (Q2: -83.3% year-on-year; Q1: -9.3% yoy) and the education sector (Q2: -56.2% yoy; Q1: +5.3% yoy) were particularly sharp, leading the downturn. The results largely reflected international travel disruptions due to restrictions implemented at home and abroad to contain the spread of the virus, as well as school and university closures. Moreover, the transport and storage sector contracted 11.6%, swinging from 6.1% growth in Q1. Meanwhile, the manufacturing sector (Q2: -3.9% yoy; Q1: +2.9% yoy) and the wholesale and retail trade sector (Q2: -6.9% yoy; Q1: +6.4% yoy) were also affected, likely reflecting a slowdown in household spending and depressed demand.

In brighter news, the fallout was not broad-based as some sectors still managed to grow. The all-important agricultural sector grew 6.4% in Q2, up from Q1’s 4.9% expansion, supported by higher tea production and fruit exports. Moreover, the mining and quarrying sector expanded 10.0% in Q2, picking up the pace slightly from Q1’s 9.5%, while health sector growth also accelerated to 10.3% in Q2 from 5.8% in Q1. Meanwhile, the construction sector grew 3.9% in Q2, although it decelerated from Q1’s 5.3% growth rate.

Looking ahead, the shock caused by the pandemic will hamper growth this year as restrictions weigh on domestic activity, while international travel disruptions and subdued global demand hurt the external sector. However, accommodative monetary policy and increased money supply are expected to cushion the downturn somewhat. Next year, activity is expected to recover strongly on the back of healthier global demand and a pickup in the tourism sector as the world’s economies reopen. Nevertheless, risks regarding the uncertain evolution of the pandemic will likely remain.

FocusEconomics Consensus Forecast panelists see GDP growth at 4.9% in 2021, which is down 0.2 percentage points from last month’s estimate. Panelists forecast GDP growth accelerating to 5.4% in 2022.

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GDP shrank 5.7% year-on-year in the second quarter, swinging from the 4.9% growth recorded in the first quarter, according to Kenya’s Statistical Institute (KNBS). Q2’s reading marked the first contraction in at least a decade.

Looking at the details of the release, contractions in the accommodation and restaurants sector (Q2: -83.3% year-on-year; Q1: -9.3% yoy) and the education sector (Q2: -56.2% yoy; Q1: +5.3% yoy) were particularly sharp, leading the downturn. The results largely reflected international travel disruptions due to restrictions implemented at home and abroad to contain the spread of the virus, as well as school and university closures. Moreover, the transport and storage sector contracted 11.6%, swinging from 6.1% growth in Q1. Meanwhile, the manufacturing sector (Q2: -3.9% yoy; Q1: +2.9% yoy) and the wholesale and retail trade sector (Q2: -6.9% yoy; Q1: +6.4% yoy) were also affected, likely reflecting a slowdown in household spending and depressed demand.

In brighter news, the fallout was not broad-based as some sectors still managed to grow. The all-important agricultural sector grew 6.4% in Q2, up from Q1’s 4.9% expansion, supported by higher tea production and fruit exports. Moreover, the mining and quarrying sector expanded 10.0% in Q2, picking up the pace slightly from Q1’s 9.5%, while health sector growth also accelerated to 10.3% in Q2 from 5.8% in Q1. Meanwhile, the construction sector grew 3.9% in Q2, although it decelerated from Q1’s 5.3% growth rate.

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