Kenyan Growth Slows as Farming Shrinks for First Time Since 2009

NAIROBI (Capital Markets in Africa) – Economic growth in Kenya slowed in the first quarter, crimped by the first contraction in agricultural output in eight years and a slowdown in bank lending.

Gross domestic product in East Africa’s largest economy grew 4.7 percent from a year earlier in the three months through March, compared with 5.8 percent reported in the previous quarter, the Kenya National Bureau of Statistics said in a statement on its website. Kenya’s rain-fed farming industry contributes about 30 percent to GDP.

“The quarter’s growth was negatively impacted by drought that emanated from failure of the 2016 short rains and delay in the onset of the 2017 long rains,” the agency said. “A slowdown in credit uptake also slowed economic growth.”

Kenya may revise its 2017 growth forecast to 5.5 percent from 6 percent after dry weather slashed corn production and also resulted in shortages of sugar and milk, Treasury Secretary Henry Rotich said June 8. Drought years in Kenya, the world’s biggest black-tea exporter, are associated with a deceleration in GDP growth of about 0.6 percentage points, the World Bank said in April.

The lower rainfall may also have fiscal and external-balance implications given the need to import the staple food corn, the lender said. The International Monetary Fund may revise its earlier forecast of 5.3 percent economic growth in 2017 to reflect the drought’s impact, it said in April.

Knock-On Effects
The decline in farming output may have knock-on effects on the economy’s performance in the second quarter, after rising food prices curbed private consumption, according to Mark Bohlund, an economist at Bloomberg Intelligence in London.

Economic challenges such as a slowdown in private-sector credit growth, as banks tighten lending on risk aversion and a law that enforces a ceiling on borrowing costs, are hampering growth, Bohlund said in an emailed response to questions before the release of the data.

Growth in banks’ loans to businesses and individuals slowed to 3.3 percent in March from 15.6 percent a year before, the Central Bank of Kenya said June 28. Lending to agriculture and manufacturing shrank 9.3 percent and 7.8 percent respectively, the central bank said.