Kenya’s economy grew faster than anticipated in the first quarter after the agriculture sector snapped four consecutive quarters of contraction.
Gross domestic product in the three months through March rose 5.3% from a year earlier, compared with an downwardly revised 3.7% in the previous quarter, Kenya National Bureau of Statistics said in an emailed report on Tuesday. That was the fastest quarterly growth in a year and beat the median of three economists’ estimates in a Bloomberg survey for expansion of 3.3%.
Kenya Agriculture Industry Lifts First Quarter Growth
Favorable weather conditions in the quarter meant the agriculture sector, which comprises almost 25% of total output, and employs more than 70% of rural people, grew 5.8% from a year earlier. The sector contracted last year as the country battled its worst drought in four decades, which threatened about 5 million people in Kenya with hunger.
A 7% slump in the shilling against the dollar during the quarter boosted earnings of key farm exports such as tea, flowers, fruits and vegetables.
The relatively strong growth in the first quarter could support overall expansion this year, which the Central Bank of Kenya sees at 5.5%. The nation’s parliamentary budget office projects at 5.1%, almost similar to the World Bank’s forecast of 5%.
Risks to Growth
Risks to the outlook include Moody’s Investors Service’s recent credit ratings downgrade, high inflation, rising domestic and global interest rates and new taxes.
The central bank’s monetary policy committee lifted the key interest rate a percentage point to 10.5%, its highest level in seven years, last Monday at an unscheduled meeting, because of sustained inflationary pressures, such as a slew of new taxes.
The new levies, which include doubling value-added tax on fuel, a mandatory 1.5% housing levy for employees and a 5 percentage point increase in personal income tax for the highest-income band, were introduced to finance the nation’s 3.68 trillion shilling ($26.2 billion) budget for the year through June 2024.
While the new taxes were due to start July 1, most were temporarily suspended by a court order last week.
The interest rate “hike is likely to put pressure on the government’s push to promote growth as a backdrop to increasing revenue collection,” Eurasia Group said in an emailed research note ahead of the release.