Economic growth slows to six-quarter low in Q2

Political protests drive slowdown: The economy lost steam in the second quarter, growing 4.6% year on year (Q1: +5.0% yoy) and marking the slowest expansion since Q4 2022. Political protests relating to the cost-of-living crisis flared up in Q2 due to a proposed tax hike, disrupting activity across all sectors of the economy.

Agriculture and services weigh on growth: On the production front, the annual GDP moderation largely reflected softer readings from the agricultural and services sectors. Growth in agricultural sector output—which accounted for over 21% of GDP in 2023—slowed to 4.8% annually in the second quarter from the first quarter's 6.1% increase, marking the worst result since Q4 2022. Moreover, the tertiary sector posted a broad-based deterioration: Retail and wholesale trade growth waned to 4.4% in Q2 (Q1: +4.9% yoy); transport sector output rose 3.6% in April–June, below the prior quarter’s 3.9% upturn; and financial services lost momentum to a near four-year low of 5.1% (Q1: +7.0% yoy). More positively, the manufacturing sector expanded at a stronger pace of 3.2% in Q2 (Q1: +1.2% yoy), and mining and quarrying contracted at a softer clip of 2.7% compared to the previous quarter’s 14.8% decline.

Momentum to strengthen; downside risks loom: Our panelists expect the economy to have gained steam in the third quarter. That said, risks to the projection are skewed to the downside. Though President Ruto scrapped the tax bill, mass protests continued into the early part of Q3. Moreover, a stronger-than-expected La Niña weather pattern could undermine agricultural production. Overall, our Consensus is for economic growth to slow in 2024 as a whole from 2023, dragged on chiefly by softer momentum in public spending.

Panelist insight: Oxford Economics’ Shani Smit-Lengton commented: “We forecast real GDP growth to slow but remain strong at 4.9% in 2024. The downturn can be ascribed to adverse weather conditions, civil unrest, and heightened economic uncertainty following the withdrawal of the Finance Bill 2024 and the potential nullification of the Finance Act 2023. The trio of downgrades by Fitch, Moody's, and S&P has also put Kenya on the back foot. Nevertheless, easing consumer price pressures and ongoing IMF support will buoy the economy.”

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