Capital FM (Nairobi)

24 December 2012

Kenya: GDP Grows 4.7 Percent in Third Quarter

Nairobi — Kenya's economy expanded by 4.7 percent in the third quarter of 2012 compared 4.0 percent growth recorded in the same quarter of 2011.

The expansion was more robust in comparison to the preceding quarters of 2012 primarily due to strong performances of the agriculture and forestry, fishing, manufacturing, transport and communication and a turnaround in the performance of the electricity industry.

While releasing the results on Monday, the Kenya Bureau of Statistics noted that construction, hotels and restaurants, and mining and quarrying experienced decelerated growths over the same period.

Seasonally adjusted Gross Domestic Product, which compares consecutive quarters, expanded by 2.2 percent in the third quarter of 2012, which was significantly better than the 0.5 percent recorded in the second quarter of 2012.

The period under review was characterized by low inflation rate, high interest rates and stable exchange rate of the shilling against major world and regional currencies.

Inflation averaged at 6.4 percent during the review period from a high 16.5 percent experienced during the third quarter of 2011. The ease in the inflationary pressures was mainly on account of lower food and fuel prices.

During the review period the exchange rate averaged at Sh84.60, Sh106.3 and Sh108.37 against the US Dollar, Euro and 100 Japanese Yen, respectively.

Regionally, the Kenya Shilling exchanged at Sh18.63 and Sh29.62 while the South African Rand averaged at Sh10.2.

During the third quarter of 2011, the exchanges rates were Sh94.6, Sh133.5 and Sh122.9 against the US Dollar, Euro and 100 Japanese Yen, respectively.

High interest rates that prevailed during the quarter under review were on account of the Central Bank's sustenance of a tight monetary policy stance. Expansion in broad money supply slowed to 13.6 percent during the review period compared to a growth of 18.0 percent during a similar period of 2011.

Weighted interest rates on commercial banks loans and advances rose significantly from an average of 14.41 percent during the third quarter of 2011 to 20.0 percent in corresponding period of 2012.

The agriculture sector started the year with poor prospects after a number of parts of the country suffered severe frost during the first quarter which negatively impacted on production of tea and other vulnerable crops, while the delay in the onset of long rains led to suppressed agricultural activities.

Consequently, the sector only managed a moderate growth of around 2.0 percent during the first half of 2012. During the third quarter of 2012, however, the sector's performance improved substantially to 6.9 percent compared to a paltry growth of 0.2 in the same quarter of 2011.

During the third quarter of 2012, the manufacturing sector is estimated to have expanded by 4.8 percent compared to a growth 2.3 percent during the same quarter of 2011.

The growth in the sector was largely supported by strong expansion in the manufacture of foods mainly buoyed by a rebound in processing of sugar which expanded by 48.7 percent during the third quarter of 2012 compared to a contraction of 38.2 percent in a similar quarter of 2011.

Electricity and water supply recorded 13.7 percent growth in the third quarter of 2012 compared to a contraction of 11.1 percent over a similar period in 2011. The turnaround was primarily due to high level of rainfall experienced in the water catchments regions for electricity generation.

The construction industry is estimated to have expanded by 0.6 percent during the third quarter of 2012 compared to a growth of 3.6 percent in a similar period of 2011.

The considerable slowdown in the activities of this sector was mirrored in the production and consumption of cement whose growths slowed to 0.6 percent and 1.5 percent during the third quarter compared to expansions of 8.9 and 7.7 percent, respectively over a similar period in 2011.

The slowdown in the activities of the construction sector is attributable to the prevailing high interest rates.

The hotels and restaurants sector's growth slowed to 1.1 per cent during the third quarter of 2012 from 2.1 per cent in the same quarter of 2011. This slowdown was primarily on account of terrorism threats posed by the political instability in Somalia and a decline in the economic fortunes of major tourist sources like the USA and European countries.

The transport and communication sector is estimated to have grown by 5.2 percent during the third quarter 2012 compared to a growth of 3.9 percent in the same period of 2011. The growth was mainly supported by strong expansion in the communication sub-sector which accounted for 54.5 percent of the total growth in the industry.

The financial intermediation sector overcame the bottlenecks of high interest rates to attain one of the most impressive growths during third quarter of 2012. The financial intermediation sector grew by 6.8 percent during the reference period which was slightly lower than the 7.6 percent the sector reached in the third quarter of 2011.

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