Kenyan economy shrinks for the first time since September 2008

The Kenyan economy contracted for the first time since the third quarter of 2008 as second quarter growth dropped to a negative 5.7 per cent from a positive 5.3 per cent in 2019.

In a delayed relay of the economic performance between April and June this year, the Kenya National Bureau of Statistics (KNBS) attributed the dismal outturn of activity to COVID-19 restrictions which took effect for an extended period of the second quarter.

For instance, the government implemented tough restrictions at the start of April including a nationwide curfew, restrictions on intercounty travel and a blanket ban on all international travel.

“Although Kenya was somehow spared the severe effects of the COVID-19 pandemic in the first quarter of 2020, the economy was significantly affected by the disease in the second quarter of 2020. During this period, the country instituted measures aimed at containing the spread of the virus, that included restriction of movement in and out of some counties, closure of learning institutions, closure of some businesses especially those dealing in Accommodation and Food services, near cessation of international travel among others,” KNBS stated.

The poor economic performance in the period was characterized by substantial contractions in accommodation and food services, education, taxes on products, transportation and storage.

“As a result, the performance of most sectors of the economy were to a large extent negatively affected by these measures with output considerably constrained and in some cases came to a complete halt,” KNBS added.

The accommodation and food services sector which witnessed the partial closure of hotels and a ban on the operations of bars was the hardest hit with contracting by an alarming 83.3 percent.

Other sectors to witness significant dips in growth over the period includes transport & storage which contracted by 11.6 percent, education which caved in by 56.2 per cent as schools remain shut and taxes on products which thinned by 14.2 per cent in the period.

The overall performance of the economy was however spared from a further catastrophe by sectors registering resilience against the unprecedented shocks.

Agriculture for instance expanded by 6.4 per cent behind health services and mining at 10.3 and 10 per cent respectively.

Other sectors marking gains in the period include finance & insurance, construction, public administration and real estate activities.

The second quarter GDP print is expected to take the country by shock while breaking apart high expectations for growth in 2020  unlike projected from high frequency data sets

While, the leading economic indicators had masked the slump, the effective economic outturn registered in the period is likely to shift the expectations for higher growth in the year.

For instance, the Central Bank of Kenya (CBK) and the National Treasury will likely be forced to lower their projections from the current 3.1 and 2.6 per cent.

Combined, the first quarter growth rate of 4.9 per cent and the second quarter 5.7 per cent contraction leaves half year growth in negative territory.

According to the Head of Research at Genghis Capital Churchill Ogutu, the economy will have to expand by at least four per cent by December for a projection like 2.6 per cent to be realized.

During the same period, Kenya’s rate of unemployment doubled to 10.4 per cent as 1.7 million more Kenyans lost their jobs as earlier reported by the statistician office.