Kenya’s economic growth will increase by 5% in 2023, up from 4.8% in 2022, due to an expansion in the agriculture sector as well as a rise in private consumption.
According to the latest World Bank Africa’s Pulse report, Kenya’s growth is expected to accelerate slightly from 5% in 2023 to 5.2% and 5.3% in 2024 and 2025, respectively.
The slight increase in economic activity will be supported by higher consumption expenditure as tighter monetary policy manages to bring inflation within the target band of the Central Bank of Kenya (CBK).
Household consumption growth is expected to increase from 4.5% in 2023 to an average of 5.3% in 2024–25. Lower inflation and commitment to fiscal consolidation will boost business confidence, thus leading to higher investment levels.
Gross fixed investment is set to expand at 9.3% in 2024–25, from 7.7% in 2023.
On the production side, growth in Kenya will reflect strong increases in activity across all sectors during 2024–25—with growth accelerating to 4.2% in agriculture and 5.2% in industry.
Growth in services will remain resilient, at 5.6% in 2024–25, although down from 6.7% in 2022.
The World Bank warns that commitment to bringing down inflation to the target range and fiscal consolidation remain critical for achieving Kenya’s macroeconomic stability and fostering private sector–driven growth.
Economic activity in Kenya continued to accelerate at the start of 2023. GDP growth increased from 3.3% in the last quarter of 2022 to 5.1% in the first quarter of 2023.
Improved weather conditions, which alleviated the severe drought afflicting Kenya, drove the surge in agricultural output. The sector grew 5.8% in the first quarter of this year, up from a 0.9% contraction in the last quarter of 2022.
A 7% slump in the Kenya Shilling exchange rate against the US dollar during the quarter increased earnings of key farm exports such as tea, flowers, fruits, and vegetables.
Growth in the retail and wholesale trade sector also accelerated to 5.7% in the first quarter, up from 2.7% in the previous quarter.
Manufacturing sector growth increased slightly to 2.0% in the first quarter, from 1.8% in the fourth quarter of 2022. .
Kenya’s Private sector activity, as measured by the S&P Global PMI, remained below the 50-point mark for the sixth consecutive month in July, at 40.8, down from 45.0 in June.
Weaker customer demand and protests may have contributed to the sharp deceleration in July—the fastest since August 2022. Further depreciation of the Kenya Shilling coupled with increased fuel prices due to the higher value-added tax on fuel led to a surge in business costs.
Recent fiscal consolidation measures have triggered unrest and led the government to provide relief from future price adjustments through a price stabilization fund.
Sub Saharan Africa
Meanwhile, Sub-Saharan Africa’s economic outlook remains bleak and is forecast to slow down to 2.5% in 2023, from 3.6% in 2022.
According to the World Bank Africa’s Pulse report, rising instability, weak growth in the region’s largest economies, and lingering uncertainty in the global economy are dragging down growth prospects in the Sub Sahara Africa.
South Africa’s GDP is expected to only grow by 0.5% in 2023 as energy and transportation bottlenecks continue to bite.
Nigeria and Angola are projected to grow at 2.9% and 1.3% respectively, due to lower international prices and currency pressures affecting oil and non-oil activity.
Increased conflict and violence in the region weigh on economic activity, and this rising fragility may be exacerbated by climatic shocks.
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