Kenya’s economy grew 5 percent in 2023, up from 4.8 percent in 2022 despite continued challenges, the World Bank said in a report released Wednesday. The World Bank’s 28th Kenya Economic Update (KEU) attributes the enhanced growth in 2023 to a robust recovery in the agricultural sector, which previously grappled with prolonged drought, coupled with steady growth in the services sector.
The report, released in Nairobi, Kenya’s capital, highlights that the agricultural recovery has Enhanced food supply, and combined with monetary policy adjustments, has Eased inflationary concerns.
The report says Kenya has recorded stronger growth, despite continued challenges, with GDP growth accelerating from 4.8 percent in 2022 to an estimated 5.0 percent in 2023. A rebound in agriculture, which had faced two consecutive years of output decline, and the continued strength and resilience of the services sector contributed to the improved performance.
On the other hand, Manufacturing was negatively impacted by surging production costs as input and borrowing costs rose, as business sentiment deteriorated in the first half of 2023 driven by among others political tensions, a weakening shilling, and a slowing global economy.
This resulted in slowed industrial activity that consequently moderated growth in the services sector. However, expansion in tourism continued in the first half of 2023 albeit at a more gradual pace. The report indicates that within the country, droughts and floods could reignite inflationary challenges and food shortages. This, combined with ongoing reforms, might hinder growth.
Additionally, external threats may arise from fluctuations in global credit markets, slower growth than expected in the Euro Zone, and heightened commodity costs due to international tensions.
The report also highlights ongoing debt-related risks, emphasizing that increasing debt expenses limit the government’s capacity to tackle developmental issues.
According to the report, economic growth weakened in advanced economies, contributing to a decline in global growth from 3.1 percent in 2022 to rates around 2.1–2.6 percent in 2023. Tight monetary policy weighed substantially on economic activity of advanced economies, with considerable slowdowns predicted for the Euro Area in 2023.
The rapid rise in interest rates in the U.S. has led to substantial tightening of financial conditions for the emerging market and developing economies (EMDEs), with the more vulnerable EMDEs facing potential financial disruptions.
Lower growth was also recorded for sub-Saharan African countries, decelerating from 3.6 percent in 2022 to an estimated 2.5–3.0 percent in 2023. This has been attributed to, among others, tight domestic macroeconomic policies in response to elevated inflation and fiscal challenges, exacerbated by global uncertainty and tight global financial conditions.
The Bank projects that Kenyan real gross domestic product (GDP) will grow between 4.5 percent and 5.2 percent in 2024. It says improved investor confidence and credit to the private sector helped by reduced domestic borrowing by the government will strengthen private investment over the medium term.
The Kenya Economic Update (KEU) is a World Bank report series produced twice a year that assesses recent economic and social developments and prospects in Kenya, and places these in a longer-term and global context. Through special topics, the KEU also examines selected policy issues and medium-term development challenges in Kenya.
It is intended for a wide audience, including policymakers, business leaders, financial market participants, and the community of analysts and professionals engaged in Kenya’s changing economy.
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