Kenyan Economy Expands at Fastest Pace in 2 Years on Farming

(Bloomberg) -- Kenya’s economy expanded at the fastest pace since the second quarter of 2016 as the nation reaps the benefits of a rebounding farm sector.

Gross domestic product in East Africa’s biggest economy rose 6.3 percent in the three months through June, from 5.7 percent in the previous quarter, the Kenya National Bureau of Statistics said Friday in a statement emailed from Nairobi, the capital. That was higher than the median of six economists’ estimates in a Bloomberg survey, and the central bank’s forecast of 6.1 percent.

“The growth was against a backdrop of a fairly stable macroeconomic environment and favorable weather conditions,” the statistics agency said.

The Kenyan economy grew by 4.9 percent in 2017, the slowest pace in five years, as the combined impact of a drought and protracted elections suppressed output in the world’s largest shipper of black tea. The farming sector in Kenya, which supplies about a third of the flowers sold in Europe, contributes about 30 percent to the country’s total output.

Tea production rose 18 percent and the value of the horticultural exports climbed 29 percent in the quarter to 37.1 billion shillings ($367.7 million), the agency said. The two are Kenya’s leading foreign-exchange earners after remittances.

Agricultural output climbed 5.6 percent after expanding 5.2 percent in the first quarter, while manufacturing rose 3.1 percent from 2.3 percent during January-March. Construction’s growth decelerated to 6.1 percent from 7.2 percent, the KNBS said. Financial services slowed to 2.3 percent from 2.6 percent amid an interest-rate cap that’s constrained lending.

“We expected financial services growth to pick up towards the end of the year due to the scrapping of interest-rate controls, but that doesn’t seem to be on the cards anymore,” said Jacques Nel, chief economist at South Africa-based NKC African Economics.

Kenya’s treasury revised its full-year growth estimate upward to 6 percent citing agriculture. The state also anticipates that the so-called Big-Four agenda that seeks to increase manufacturing output, provide healthcare for all, build social and low-income housing and increase food production will buoy the economy this year. Renaissance Capital’s sub-Saharan Africa’s economist, Yvonne Mhango, sees the target as optimistic and expects 5.4 percent instead.

“The key question going forward, given higher oil prices, a more subdued pace to public capital expenditure, and ongoing constraints on private-sector lending, is whether the economy manages to maintain this momentum,” said Razia Khan, head of macroeconomic research at Standard Chartered Bank Plc.

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