Economic growth shoots up in Q4

Economy benefits from a period of renewed political calm: The economy ended 2024 on a stronger footing, with annual GDP growth accelerating to 5.1% in the fourth quarter. Mass protests against corruption and tax hikes broadly subsided, giving respite to economic activity. The reading was above Q3’s 4.2% rise, in line with the pre-Covid 10-year average and among the strongest across sub-Saharan Africa. Still, Q4’s upturn failed to stem the overall slowdown in 2024, with economic growth easing to 4.7% (2023: +5.7%), the weakest result in seven years—barring 2020’s pandemic-induced contraction. Meanwhile, on a seasonally adjusted quarter-on-quarter basis, economic activity rose 1.8% in Q4 (Q3: +1.2% qoq s.a.).

Kenya sees improvements across the board: On the production front, the annual GDP acceleration was led by the industrial sector, which recovered in Q4 from its first decline since Q2 2020 in Q3. In particular, construction activity rebounded by 2.9% in the fourth quarter after shrinking 2.6% in the prior quarter, and manufacturing expanded at a faster pace of 3.9% in Q4 (Q3: +2.3% yoy); these sectors are more sensitive to borrowing conditions and likely benefited from the interest rate cuts that began in August 2024. Moreover, mining and quarrying slid at the softest pace in five quarters (Q4: -2.3% yoy; Q3: -12.2% yoy). Moreover, growth in agricultural sector output—which accounts for over a fifth of GDP—accelerated slightly to 4.3% in the three months to December from the third quarter's 4.0%, benefiting from higher water levels and sustained electricity supply boosting crop irrigation. Meanwhile, the tertiary sector gained the most from the renewed political calm, with domestic trade rising by a whopping 6.4% in Q4 (Q3: +2.6% yoy). An additional boost will have come from a sharp decline in inflation and an over 20% increase in remittances aiding household budgets.

Faster momentum forecast ahead: Our panelists expect this increased impetus to have carried over into 2025, with annual GDP growth dipping only slightly below Q4’s pace in Q1. Economic momentum is then seen broadly stabilizing in Q2–Q4. As a result, our Consensus is for economic growth to accelerate to around the 10-year pre-pandemic trend in 2025 as a whole, with interest rate cuts providing key tailwinds. Still, deteriorating fiscal metrics and renewed political instability are downside risks.

Panelist insight: EIU analysts commented: “We believe that five successive interest-rate cuts will allow GDP growth to firm above 5% this year, with the country relatively unaffected by the new US tariff regime. […] The finance bill for 2025/26 (July-June) has been submitted to parliament, envisaging a cut in the budget deficit from 5.1% of GDP in 2024/25 to 4.5% of GDP, a pace of fiscal consolidation allowing for an uptick in overall real GDP growth.”

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